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Here's Why You Should Hold Synopsys Stock in Your Portfolio

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Synopsys, Inc. (SNPS - Free Report) has been gaining from recent product launches, client acquisitions and buyouts. The company has an average trailing four-quarter earnings surprise of 7.8%.

With expected long-term earnings per share growth rate of 10% and a current market cap of $13.3 billion, it seems to be a stock that investors should retain in their portfolio right now.

Let’s take a look at the factors aiding the company’s performance.

Increased adoption of Synopsys’ products, as well as strength in hardware segment and IP are aiding the company’s growth, as evident from its second-quarter fiscal 2018 revenues that jumped 14.2% year over year to $776.8 million.

 

Notably, the company is gaining traction from acquisitions. In January 2018, Synopsys acquired Kilopass Technology, a provider of one-time programmable (OTP) non-volatile memory (NVM) IP with applications in automotive, mobile, industrial and Internet of Things (IoT) areas. The buyout is expected to help Synopsys in offering a wide portfolio of efficient IP solutions.

Synopsys is also reaping the benefits of acquiring Black Duck Software, a provider of solutions related to security and management of open source software. Black Duck’s brand recognition as well as cross-selling options are proving to be accretive to the company’s top line.

Nevertheless, the company’s escalating costs and expenses, which are thwarting margins, make us increasingly cautious about its near-term profitability. Additionally, uncertainty regarding the timeline for realization of acquisition synergies remain headwinds.

Moreover, the company faces stiff competition from peers like Cadence Design Systems (CDNS - Free Report) , which might result in lower prices and profits for Synopsys.

Furthermore, the company has customer-concentration risk, as a small number of customers account for significant portion of its revenues. This could be risky, as loss of a single customer could affect its operating performance significantly and thereby jeopardize results.

However, Synopsys' improving top line along with shareholder-friendly initiatives like the recent announcement of buying back $165 million worth of common stocks under an accelerated share repurchase (ASR) program make this Zacks Rank #3 (Hold) stock worth retaining in the portfolio.

Stocks to Consider

Some better-ranked technology stocks include The Ultimate Software Group, Inc. and Citrix Systems, Inc. , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for The Ultimate Software Group and Citrix Systems is currently projected to be 21.7% and 9.1%, respectively.

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