Synopsys (SNPS – Free Report) is one of the stocks that investors can currently add to their portfolio to counter the highly volatile market conditions and benefit from its upside potential.
Wall Street continues to witness high volatility due to the vicious macro challenges, ranging from the Covid-led supply crisis and war in Ukraine to the rising inflation and interest rate pressures. With the continued fear of the impact of Federal Reserve’s aggressively raising interest rate policy, global investors are panicking about getting into the market right now.
All major stock indices are in negative territory year to date. The Dow Industrial, Nasdaq and S&P 500 have plunged 8.6%, 33% and 19.2%, respectively, in the year to date. In such a scenario, top-ranked stocks like Synopsys can boost one’s portfolio.
Why SNPS is an Attractive Pick
An Outperformer: A glimpse at SNPS’s price trend reveals that the stock has gained 6.9% in the past six months against 7.3% loss of the Zacks Computer – Software industry. Year to date, shares of the company plunged 12.6%, outperforming the industry’s decline of 31.3%.
Trading Way Below 52-Week High: Synopsys stock currently trades lower than its 52-week high, which reflects its potential to go upward. The stock’s closing price of $321.98 on Dec 29 was 17.7% lower than the 52-week high of $391.17 attained on Aug 15, 2022.
Attractive Valuation: SNPS currently trades at an attractive valuation multiple. The stock trades at one-year forward price-to-earnings multiple of 30.85X compared with its five-year average of 42.96X.
Solid Rank & Growth Score: Synopsys currently has a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities to investors. Thus, the company appears to be a compelling investment proposition at the moment.
Northward Estimate Revisions: The direction of estimate revisions serves a key role when it comes to the price of a stock. Analysts have raised the estimates for Synopsys’ fiscal 2023 and fiscal 2024 over the past 30 days, reflecting their confidence in the company. Over the past 30 days, consensus mark for fiscal 2023 and fiscal 2024 earnings moved north by 9 cents and 59 cents, respectively.
Positive Earnings Surprise History: Synopsys has an impressive earnings surprise history. The company outpaced estimates in each of the trailing four quarters, the average earnings surprise being 3.4%.
Strong Growth Prospects: The Zacks Consensus Estimate of $10.13 per share for fiscal 2023 earnings suggests growth of 13.8% from the year-ago earnings of $8.90 per share. For fiscal 2024, earnings are expected to increase 18.6% year over year and are likely to reach $12.01 per share.
Robust Fundamental Growth Drivers: Synopsys has been benefiting from strong design wins owing to a robust product portfolio. The company’s penetration into new and growing artificial intelligence (AI) chip companies is a major growth driver. With the increasing need for enhanced security measures, considering the rising security threats in interconnected systems laden with software, demand for Synopsys’ solutions is shooting up. Robust growth in software-based verification at both traditional semiconductor and emerging system companies focused on their own in-house design is an upside.
Growth in the work-and-learn-from-home trend is driving demand for bandwidth. Synopsys Fusion Design Platform, launched a year ago, is witnessing high demand, helping it generate strong results. Growing demand for advanced technology, design, intellectual property and security solutions is also creating solid prospects. The company’s Verification Continuum platform steadily witnesses excellent demand and competitive wins. Further, ZeBu Server 4 product is generating broad-based adoption by customers’ designing storage, networking and AI chips.
Further, strong traction for Fusion Compiler product continues to accelerate Synopsys top line. Rising impact of AI, 5G, internet of things and big data is driving investments in new compute and machine learning architectures. Given the volatile economic scenario at present, customers are strengthening their supplier relationships and focusing on cost efficiencies. Many of them have selected Synopsys as their primary electronic design automation partner.
Recently, in October, the company declared that it has produced multiple successful test chip tapeouts on its digital and custom design solutions in collaboration with and certified by Samsung Foundry. This not only strengthened the company’s longstanding collaboration with Samsung Foundry but also addressed the growing customer demand for use of mobile, high-performance computing and artificial intelligence applications by substantially reducing power, improving performance standards and decreasing area levels.
Other Key Picks
Some top-ranked stocks from the broader Computer and Technology sector are AudioCodes (AUDC – Free Report) , Fabrinet (FN – Free Report) and Zscaler (ZS – Free Report) . While AudioCodes sports a Zacks Rank #1, Fabrinet and Zscaler carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for AudioCodes’ fourth-quarter 2022 earnings has been revised 4 cents north to 39 cents per share over the past 60 days. For 2022, earnings estimates have moved south by a penny to $1.39 per share in the past 60 days.
AUDC’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and missed the rest, the average surprise being negative 5.4%. Shares of the company have declined 48.9% in the year to date.
The Zacks Consensus Estimate for Fabrinet’s second-quarter fiscal 2023 earnings has been revised 16 cents northward to $1.89 per share over the past 60 days. For fiscal 2023, earnings estimates have improved by 7.6% to $7.48 per share in the past 60 days.
FN’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters and missed the same once, the average surprise being 5.4%. Shares of the company have risen 9% in the year to date.
The Zacks Consensus Estimate for Zscaler’s first-quarter fiscal 2023 earnings has been revised 3 cents north to 29 cents per share over the past 30 days. For fiscal 2023, earnings estimates have moved north by 6 cents to $1.23 per share in the past 30 days.
ZS’ earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 28.6%. Shares of the company have declined 65.2% in the year to date.