Tech stocks have suffered a sell-off on concerns over forthcoming interest rate hikes and rising geopolitical tensions. However, rapid digitization, growing tech spending by enterprises, and continuing innovation should drive the tech sector’s growth. So, we think the recent price dips could be an opportune time to bet on the fundamentally sound technology stocks Synopsys (SNPS), F5 Networks (FFIV), and Semtech (SMTC). Let’s discuss.
shutterstock.com – StockNews The major market indices continue to exhibit significant volatility due to investors’ concerns surrounding forthcoming interest rate hikes and escalating geopolitical tensions. The tech sector has been among the hard-hit sectors. The tech-heavy Nasdaq composite has plunged nearly 13.4% year-to-date.
However, the continuation of remote working and ongoing digital transformation across industries should help the sector rebound quickly. According to Gartner, global IT spending is expected to reach $4.5 trillion in 2022, representing an increase of 5.1% from 2021. In addition, with corporations venturing into emerging technologies, such as 5G, quantum computing, artificial intelligence, and metaverse, the sector should thrive.
Therefore, we think it could be wise to bet on quality tech stocks Synopsys, Inc.(SNPS), F5 Networks, Inc. (FFIV), and Semtech Corporation (SMTC) to capitalize on the sector’s long-term prospects. Though these stocks have plunged more than 15% in price year-to-date, we think they are well-positioned to rebound in the coming months.
Synopsys, Inc.(SNPS)
SNPS in Mountain View, Calif., offers electronic design automation software products used to design and check integrated circuits. It provides a Combination of Design Platform that gives digital design application solutions and a Verification Continuum Platform that provides virtual prototyping, static and formal verification, simulation, emulation, field programmable gate array (FPGA)-based prototyping and debug solutions.
This month, SNPS declared the widespread availability of Code Sight Standard Edition, an independent version of the Code Sight plugin for integrated development environments (IDE). This allows developers to quickly search and fix security defects in source code, open-source dependencies, infrastructure-as-code files, and more before executing their code. With this service improvement, SNPS is expected to witness increased demand.
Also, this month, the company said it would join the newly launched Intel Foundry Services (IFS) Accelerator EDA and IP Alliance. This pact gives SNPS an early way into Intel’s process roadmap, process design kits, etc., providing EDA and IP solutions optimized for increased reliability, security, power performance, and area for Intel processes and packaging technologies.
SNPS’ net sales increased 30.9% year-over-year to $1.27 billion in the first quarter, ended Jan. 31, 2022. Its operating income grew 133.9% from its year-ago value to $347.04 million, while its non-GAAP net income improved 57.4% year-over-year to $376.89 million. The company’s non-GAAP EPS increased 57.9% from its year-ago value to $2.40.
Analysts expect SNPS’ revenue to increase 21.9% year-over-year to $1.25 billion in the current quarter (ending April 2022). The company’s EPS is expected to grow 36.6% year-over-year to $2.32 in the current quarter. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has declined 22% in price year-to-date. However, it has gained 22.4% over the past nine months.
SNPS’ POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SNPS has also rated an A grade for Quality and a B for Growth and Sentiment. Within the Software- Application industry, it is ranked #10 of 166 stocks.
To see additional POWR Ratings for Value, Stability, and Momentum for SNPS, click here.
Click here to check out our Software Industry Report for 2022
F5 Networks, Inc. (FFIV)
FFIV in Seattle, Wash., offers multi-cloud application security and delivery solutions for network security, performance, and availability. This enables customers to develop, deploy, operate, secure, and govern applications and control applications in any architecture, from on-premises to the public cloud. In addition, it also has partnerships with public cloud providers, such as Amazon Web Series, Microsoft Azure, and Google Cloud Platform.
This month, FFIV announced a major extension of its application security and delivery portfolio with F5 Distributed Cloud Services, which provides security, multi-cloud networking, and edge-based computing solutions on a unified software-as-a-service (SaaS) platform. Furthermore, Distributed Cloud WAAP (Web Application and API Protection) will be offered as the company’s first new solution on this platform, increasing several security capabilities across F5 technologies in a single SaaS offering.
In its first fiscal quarter, ended Dec. 31, 2021, FFIV’s non-GAAP net sales increased 9.8% year-over-year to $687.10 million. Its gross profit grew 8.3% from its year-ago value to $552.03 million, while its non-GAAP net income improved 10.9% year-over-year to $179.03 million over the period. The company’s non-GAAP EPS increased 11.6% from its year-ago value to $2.89.
The $12.76 consensus EPS estimate for fiscal 2023 represents a 19.8% improvement year-over-year. Analysts expect FFIV’s revenue to increase 5.9% year-over-year to $2.76 billion in fiscal 2022. Furthermore, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
FFIV has plunged 17.6% in price year-to-date. However, the stock has gained 11.7% over the past nine months.
FFIV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Quality and a B for Growth and Value. In the Software – Business industry, it is ranked #1 of 58 stocks.
In total, we rate FFIV on eight distinct levels. Beyond what we have stated above, we have also given FFIV grades for Momentum, Stability, and Sentiment. Get all the FFIV ratings here.
Click here to check out our Software Industry Report for 2022
Semtech Corporation (SMTC)
Incorporated in 1960, SMTC is engaged in designing, developing, manufacturing, and marketing analog and mixed-signal semiconductor products and advanced algorithms. It provides signal integrity products and a portfolio of optical data communications and video transport used in various infrastructure and industrial applications. The Camarillo, Calif.-based company sells the products directly and through independent sales representatives and independent distributors in the United States, Europe, and Asia.
This month, SMTC announced a partnership with ICTnexus, an information communications technology, and Internet of Things (IoT) solution and service provider, to deliver LoRaWAN connectivity to the Cook Islands. As part of the ICTnexus Smart Islands project, an IoT platform will include SMTC’s LoRa devices and a LoRaWAN network for the Island’s infrastructure.
Also, this month, SMTC announced that Communicate2Integrate GmbH, an intelligent Internet of Things (IoT) company based in Munich, Germany, has decided to integrate Semtech’s LoRa devices and LoRaWAN connectivity for its Florja solution. Florja is a Cloud-based plant management program that permits users to observe the current status of their plants from anywhere. “Florja is innovating toward a new and easier way to manage plants,” said Michael Urban, chief executive officer of Communicate2Integrate.
During the third quarter, which ended Oct. 31, 2021, SMTC’s net sales increased 26.5% year-over-year to $194.93 million. The operating income grew 74.2% year-over-year to $37.42 million, while its net income increased 86.2% year-over-year to $34.43 million. The company’s EPS rose 89.3% from the prior-year quarter to $0.53.
SMTC is expected to achieve revenue growth of $189.34 million, representing year-over-year growth of 14.9%, in the current quarter (ended January 2022). The $0.46 consensus EPS for the current quarter indicates a 90.6% improvement year-over-year. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 21.5% in price year-to-date. However, over the past nine months, it has gained 15.6%.
It is no surprise that SMTC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. SMTC has a B grade for Sentiment, Quality, and Growth. Among the 97 stocks in the A-rated Semiconductor & Wireless Chip Industry, it is ranked #5.
Click here to see the additional POWR Ratings for SMTC (Stability, Value, and Momentum).
Click here to checkout our Semiconductor Industry Report for 2022
SNPS shares fell $0.39 (-0.14%) in premarket trading Tuesday. Year-to-date, SNPS has declined -21.95%, versus a -8.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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