What You Lost By Not Adding Synopsys To Your Portfolio

Shares of Synopsys Inc. (NASDAQ:SNPS) have been gaining solid momentum of late. One of the major reasons behind this could be the company’s better-than-expected results for the second quarter of fiscal 2016, along with an encouraging fiscal third-quarter outlook and a raised guidance for fiscal 2016.

Notably, the stock has gained approximately 8% since it reported fiscal second-quarter results on May 18. Also, year to date, the stock has soared nearly 43%.

In the fiscal second quarter, the company’s earnings per share of 66 cents surpassed the Zacks Consensus Estimate of 48 cents. In fact, Synopsys has beaten the Zacks Consensus Estimate thrice in the past four quarters, with an average positive surprise of 18.84%.

Meanwhile, the company’s revenues increased 8.6% year over year to $605 million and was within management's guided range of $595–$610 million. Reported revenues also surpassed the Zacks Consensus Estimate of $599 million. Revenues were driven by higher adoption of Synopsys’ products and strength in hardware products.

Backed by the strong results, the company issued an encouraging outlook for the fiscal third quarter and raised its fiscal 2016 guidance.

Some of the optimism surrounding the stock may also be attributed to its efforts on offering customers increased hardware efficiency and enabling significant reductions in both CPU memory consumption and manufacturing turnaround time.

Synopsys sells electronic design automation (EDA) software to the semiconductor and electronics industries. In the current economic scenario, customers are strengthening their supplier relationships while focusing on cost efficiencies, and many have selected Synopsys as their primary EDA partner.

Besides, acquisitions have helped Synopsys gain access to newer markets and technologies. Since intensifying competition is making the EDA market tougher to penetrate into, strategic buyouts boost the company’s revenues as evident from last quarter’s top-line performance.

Recently, the company has acquired Simpleware – a privately owned company that specializes in developing software products that help convert “3D scan data into high-quality computer models used for engineering design and simulation”. The transaction will not only enhance Synopsys’ product portfolio, but also add the former’s customers, thereby boosting the top line.

We believe that the company’s sustained focus on product launches, acquisitions and deal wins will aid results, going ahead. Apart from this, unique intellectual properties and global support provided by the company will drive results. Additionally, Synopsys’ acquisitions will expand its reach in the software quality, testing and security tools markets.

Currently, the stock sports a Zacks Rank #1 (Strong Buy). Other stocks worth considering in broader technology sector include DST Systems Inc. (NYSE:DST) , CommVault Systems Inc. (NASDAQ:CVLT) and Silicon Motion Technology Corp. (NASDAQ:SIMO) , each carrying the same Zacks Rank as Synopsys.