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Synopsys Outshines in 2019: Can It Retain its Rally in 2020?

Madhura Bhattacharyya

Synopsys SNPS, a leader in supplying electronic design automation (EDA) software, witnessed an outstanding 2019 during which the company successfully tided over several macro challenges.

Growing momentum in EDA, IP and hardware-based verification has been a tailwind. Notably, the stock has soared 64%, outperforming its industry’s growth of 43.9% as well as the S&P 500 Index’s 27.2% rally on a year-to-date basis.

Year-to-Date Price Performance

As a matter of fact, Synopsys flaunts a superb earnings track record, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 6.7%.

With an expected long-term earnings per share growth rate of 12.8% and a market cap of $20.81 billion, this Zacks Rank #1 (Strong Buy) stock seems to be a bet to reckon with investors in 2020. You can see the complete list of today’s Zacks #1 Rank stocks here.

What’s Driving Synopsys?

Synopsys is benefiting from increasing global design activity and customer engagements. The company’s penetration into new and growing AI chip entities is a major driver.

Rising impact of ML, AI, Automotive, 5G, IoT, cloud and the proliferation of Smart Everything are boosting demand for its advanced solutions.

The company is looking to expedite growth by maintaining its dominance in EDA and IP. Expanding relationships with EDA and IP customers and ecosystem partners are a key catalyst. Connections with companies like Advanced Micro Devices AMD and Juniper Networks JNPR stand testament to this upside.

The launch of several game-changing EDA products is also a positive. Notably, rising client wins and growing deployment of Fusion platform including new Fusion Compiler product launched last November are helping the company deliver strong results.

Moreover, an uptick in Custom Compiler revenues, fueled by multiple full-flow competitive displacements, is encouraging. Key wins in the 5G, AI and server chip markets are a tailwind.

Moving to Verification Continuum platform, the company holds a dominant market position in both software and hardware.

Given the unmatched speed, highest capacity, lowest cost of ownership and lowest power consumption of its hardware products, the company significantly expanded its customer base, adding nearly 40 customers and more than 80 repeat orders in 2019.

Further, the company’s focus on scaling and growing Software Integrity in a diverse customer base at new TAM, is appreciative. The latest introduction of cloud-based Software Integrity platform, Polaris, which is already witnessing a solid adoption, makes management optimistic.

For 2020, the company focuses on enhancing customer engagements, which include high-level benchmarking, program development advice and large product deployments.

Additionally, refining its channel to better serve large enterprise customers, chief market verticals and new regional business further bode well.

Synopsys, Inc. Revenue (TTM)

Synopsys, Inc. Revenue (TTM)
Synopsys, Inc. Revenue (TTM)

Synopsys, Inc. revenue-ttm | Synopsys, Inc. Quote

Fiscal 2020 Estimates Look Impressive

The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at $5.22 per share, up 4.6% in the past 30 days. The earnings figure indicates growth of 14.5% from the year-ago reported figure.

Further, the Zacks Consensus Estimate for fiscal 2020 revenues stands at $3.6 billion, suggesting a 7.85% increase from the prior-year reported number.

Bottom Line

Although geopolitical challenges are an unrelenting concern, hefty investments in critical chip and system designs by electronics players are heightening the company’s confidence.

Per Report Buyer, the EDA tools market, valued at $6.32 billion in 2018, is projected to reach $9.49 billion by 2024, registering a CAGR of 7.8% during the forecast period (2019-2024).

Driven by a diversified clientele from multiple key verticals and geographies plus a strong product portfolio, Synopsys looks well poised to carry on with its growth momentum in 2020 and counter competition from Cadence Design Systems CDNS.

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Juniper Networks, Inc. (JNPR) : Free Stock Analysis Report
Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report
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