Ian Fung Synopsys Inc SNPS-Q TOP PICK Jun 06, 2019

Might want to write some calls. For quite a pretty penny, bought a company that does visualizations and simulations. You can own it here around $550, more at $520, and just south of $500.

February 21 earnings banged it out of the park. Raised guidance, a rare event. 12-month target of $648, still decent runway left. If looking to buy in, try in stages at $570-575, and $525.

Their software is powering Nvidia to make GPU chips. SNPS shares have run up as a result, though weakened in the past month. Price-to-cash flow is estimated to fall between 2025 and 2026, so the street expects the company to grow a lot. He believes AI will continue to grow. SNPS's valuation isn't extreme like others in AI.

It trades in line with NVDA, which is going down (though he likes it).

Still owns this and CDNS and Ansys stock, a peer, which dominate this space. The stock is stuck because it's stuck in UK regulations, though he expects it to be approved next year. When it does, SNPS will be the king of this space. His price target is $648. They last beat the top and bottom lines. Buy this at $440-460 or even now.

They boast a good moat and are in a duopoly. They help build computer chips, a huge industry. They are buying Ansys, a similar company with industrial applications.

Digital twins to diagnose machinery problems. 12-month price target of $618, mainly because of its upcoming purchase of a UK company which will make SNPS the king of the hill. Will become the go-to for electronic design software.

The competitor to CDNS. Just finished acquisition of third-largest designer software firm. Digestion problems on that, so stock dropped 35% on reporting. Report was good, but "whisper" numbers were a heck of a lot higher. 

Great place to buy. He'd actually sell some puts at just a little bit lower, to get some income. If you get hit at your strike price, then you're buying a little bit lower.

EPS of $3.39 missed estimates of $3.81. Revenue of $1.74B missed estimates of $1.77B. Synopsys missed fiscal 3Q results due to a major shortfall in its Design IP business (25% of total sales), which fell 7.7% to $428 million, lower by about $125 million than consensus. The factors for the weakness included China export restrictions that disrupted design starts, with an impact on customers beyond the six-week BIS ban, challenges at a major foundry customer and road-map decisions that yielded unfavorable results. Design Automation grew 24% on traction in digital (Fusion Compiler) and its hardware-assisted verification. Fiscal 2025 revenue guidance of $7.045 billion at the midpoint is lower than expected, given Ansys' quarterly sales of $600 million. Mixed end markets remain, with industrial, autos and mobile trailing AI/high-performance computing. Some drop in the stock is certainly warranted, but 34% seems harsh. Good earnings growth is still forecasted, but investors are a bit skittish because of the new large debt level with the Ansys deal. We would not expect much for the balance of the year and would not add here, but we think it is still a solid company with a good overall outlook.
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