A month has gone by since the last earnings report for Synopsys (SNPS Quick QuoteSNPS - Free Report) . Shares have added about 4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Synopsys due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Synopsys Beats Q1 Earnings and Sales Estimates

Synopsys reported first-quarter fiscal 2023 non-GAAP earnings of $2.62 per share, beating the Zacks Consensus Estimate of $2.50. The bottom line improved 8.3% year over year.

Revenues jumped 7.2% year over year to $1.36 billion, driven by growth across its business segments. The top line surpassed the Zacks Consensus Estimate of $1.35 billion by 0.7%.

Synopsys benefited from the increasing demand for its products amid the rapid adoption of Big Data, faster computation and Machine Learning. Complex, connected, specialized and secure chips and systems witnessed strong momentum and drove Synopsys’ quarterly performance.

Quarter in Detail

In the license-type revenues group, Time-Based Product revenues (57.5% of total revenues) of $782.3 million were up 10.6% year over year. Upfront Product revenues (24.7%) declined 8.6% to $336.7 million. Maintenance and Service revenues (17.8%) increased 24.6% year over year to $242.4 million from the year-ago quarter’s $194.5 million.

Segment-wise, Electronic Design Automation (EDA) revenues (64.2% of revenues) were $874.3 million, up 12.3% year over year. Design Intellectual Property (IP) revenues (25.2% of revenues) amounted to $343.7 million while Software Integrity revenues totaled $127.8 million, contributing approximately 9.4% to the top line in the reported quarter.

Other revenues stood at $15.5 million, representing 1.1% of total revenues.

Geographically, Synopsys’ revenues in North America (50% of the total) and Europe (10%) were $678.4 million and $135 million, respectively. Revenues from Korea (11%), China (15%) and Other (15%) were $145.8 million, $197.8 million and $204.4 million, respectively.

The non-GAAP operating margin was 35.2%, contracting 100 basis points (bps) year over year.

EDA and Software Integrity delivered adjusted operating margins of 38.9% and 12.1%, respectively, expanding 240 bps and 90 bps on a year-over-year basis. On the contrary, Design IP margin contracted 880 bps year over year to 34.2%.

Balance Sheet & Cash Flow

Synopsys had cash and short-term investments of $1.30 billion as of Jan 31, 2023 compared with $1.57 billion as of Oct 31, 2022.

Total long-term debt was $20.6 million in the reported quarter, slightly down from $20.8 million as of Oct 31, 2022.

During first-quarter fiscal 2023, operating cash flow was $115 million.

Guidance

For the second quarter of fiscal 2023, Synopsys expects revenues between $1.360 billion and $1.390 billion. Management estimates non-GAAP earnings between $1.62 and $1.72 per share. Non-GAAP expenses are anticipated in the band of $917-$927 million.

For fiscal 2023, SNPS continues to expect revenues in the $5.775-$5.825 billion range, suggesting 14-15% growth. However, it raised its non-GAAP earnings estimate for the fiscal year from the $10.28-$10.35 per share range to $10.53-$10.60 per share range, indicating 18-19% growth.

Non-GAAP expenses are still estimated in the range of $3.810-$3.840 billion. Synopsys previously predicted an operating cash flow of approximately $1.700 billion but now it expects the figure to be around $1.650 billion for fiscal 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -9.66% due to these changes.

VGM Scores

Currently, Synopsys has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Synopsys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Synopsys is part of the Zacks Computer - Software industry. Over the past month, Cadence Design Systems (CDNS Quick QuoteCDNS - Free Report) , a stock from the same industry, has gained 6.8%. The company reported its results for the quarter ended December 2022 more than a month ago.

Cadence reported revenues of $899.88 million in the last reported quarter, representing a year-over-year change of +16.4%. EPS of $0.96 for the same period compares with $0.82 a year ago.

For the current quarter, Cadence is expected to post earnings of $1.25 per share, indicating a change of +6.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.

Cadence has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.