Synopsys, Inc.SNPSNASDAQ

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $414.73 per share(market-calibrated)

-2.7%

Upside to Fair Value

Current

$426.08

Pure Model

$410.65

Fair Value

$414.73

Bull Case

$604.93

Bear Case

$267.44

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

4.51%

Calibrated Growth

3.86%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $410.65.

What's Driving This Ratingfor SNPS

✓

CapEx already efficient

CapEx at 2.04% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 23.83% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 36.46% in Year 1 to 3.75% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

✓

Model and market roughly agree

Market-implied terminal growth of 4.51% is close to the model's 3.75% (only 76bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 88.80% indicates efficient cash generation. FCF reaches $4.3B by Year 10 (26.04% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.16

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.70%

Cost of Debt

Pre-tax Cost of Debt0.69%

Tax Rate5.00%

After-tax Cost of Debt0.65%

Equity Weight (E/V)82.68%

Debt Weight (D/V)17.32%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (82.68% × 9.70%) + (17.32% × 0.65%)

= 8.14%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$9.6B	$11.8B	$13.8B	$14.9B	$16.6B
EBIT	$2.3B	$2.8B	$3.3B	$3.6B	$4.1B
Tax	$115M	$141M	$167M	$182M	$206M
NOPAT	$2.2B	$2.7B	$3.2B	$3.5B	$3.9B
+ Depreciation	$446M	$547M	$642M	$691M	$772M
- Capex	$196M	$241M	$282M	$304M	$340M
- Δ NWC	$7M	$3M	$1M	$2M	$2M
Free Cash Flow	$2.4B	$3.0B	$3.5B	$3.8B	$4.3B
Discount Factor	0.925	0.791	0.676	0.578	0.457
Present Value	$2.2B	$2.4B	$2.4B	$2.2B	$2.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.3B

Terminal Growth Rate3.75%

WACC8.14%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$102.6B

PV of Terminal Value$46.9B

Exit Multiple Method

Year 10 EBITDA$4.9B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$136.7B

PV of Terminal Value$62.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$22.4B

PV of Terminal Value$46.9B

Enterprise Value$69.4B

(-) Net Debt$11.4B

Equity Value$58.0B

Shares Outstanding160M

Price per Share$361.91

Exit Multiple Method

PV of Projected FCFs$22.4B

PV of Terminal Value$62.5B

Enterprise Value$85.0B

(-) Net Debt$11.4B

Equity Value$73.6B

Shares Outstanding160M

Price per Share$459.39

Pure Model Fair Value

$410.65

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
6.14%	$545.74	$586.29	$643.85	$700.56	$670.07
7.14%	$449.59	$470.96	$498.63	$535.90	$588.80
8.14%	$382.30	$395.02	$410.65	$430.30	$455.76
9.14%	$331.15	$339.35	$349.07	$360.78	$375.17
10.14%	$290.22	$295.80	$302.26	$309.81	$318.77

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$267.44

-37.2% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.44

Base Case

$410.65

-3.6% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.16

Bull Case

$604.93

42.0% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.98

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth36.46%

Year 3 Revenue Growth10.80%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin23.83%

Terminal EBIT Margin25.00%

Tax Rate5.00%

Historical Capex / Rev2.04%

NWC / Revenue0.29%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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