For Immediate Release
Chicago, IL – June 1, 2020 – Zacks Equity Research Shares of Synopsys SNPS as the Bull of the Day, Acushnet Holdings GOLF asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on CrowdStrike CRWD, Zoom ZM and Netflix NFLX.
Here is a synopsis of all five stocks:
Bull of the Day:
Synopsys is the backbone of innovation for global electronics and is a safe way to invest in the semiconductor and electronics space while still being able to profit off the impending 5G revolution and the resurgence in hyperscale computing. This company is the market leader in electronic design automation (EDA) tools, which is the foundation of all electronics in the world today. Synopsys has been able to able to consistently beat expectations and progressively risen guidance, driving analysts’ estimates up and SNPS into a Zacks Rank #2 (Buy)
The world of electronics is proliferating with Moore’s Law, which was established 50 years ago by the co-founder of Intel (Gordon Moore), still holding today. The law hypothesizes that every two years the number of transistors on a microchip doubles and the cost halves. Today, integrated circuits or computer chips can hold billions of transistors on a chip the size of your fingernail.
The demand for the newest and fastest technology is always there, and we are on the brink of the next tidal wave of tech. 5G is going to drive the next tech surge as it will exponentially improve the speed and ability to connect. 5G infrastructure is just being put in place, and the world’s largest tech companies are preparing their turnkey solutions for the massive demand this improved infrastructure will spur. Synopsys is at the foundation of new technology and will ride this wave.
Synopsys’s core competency is its EDA tools (making up 60% of revenues) that help design chips as well as the systems that create these chips. Its EDA software serves hardware designers every step of the way from initial design to verification for quick and efficient turn arounds. The EDA market was worth almost $7 billion in 2018 and is expected to grow by nearly 8% annually for the next 5 years, according to IBS data.
Its duopoly with Cadence (controlling 85% of the EDA industry) and high barriers to entry gives the firm, strong pricing power. This high margin business is going to continue to drive robust profitability. Analysts are expecting these margins to expand as the company enjoys economies of scale.
Its IP products provide customers with ready to use chip designs that are proven, saving customers time. It is the 2nd largest global player in this $4.5 billion market, according to IBS’s 2018 data. Synopsys’s massive IP portfolio and over 15 years of investments give them a firm grip on this market.
Synopsys also offers products that improve software developers’ code, ensuring that there are no code defects and verifying that the code is secure. Its software integration revenue only makes up 10% of the topline but is the fastest-growing segment at healthy double-digit growth levels.
Synopsys illustrates growing annual free-cash-flows of roughly $770 million (past 4 quarters), $856 million in cash, and minimal amounts of debt on the balance sheet giving this company a large amount of financial flexibility to continue acquiring in its fragmented markets.
SNPS is trading at a sizable discount to its biggest competitor, Cadence, and in line with its 5-year forward P/E average. These shares have appreciated over 25% so far this year, and I am confident they have more room to run with 11 of 11 analysts calling this a buy right now.
Investors continue to pour money into this innovation machine, despite the pandemic. SNPS is up 30% year-to-date, roughly 70% above its March lows, and sitting at all time highs. Still, these shares still have momentum and are sitting below analysts’ average price target. SNPS may be due for a pullback with the broader markets rally seemingly exhausting. As a long-term investor I see no reason to wait to purchase these shares but be prepared for some short-term volatility.
Bear of the Day:
Acushnet Holdings, owner of household golf brands such as Titleist, FootJoy, and Pinnacle, has surged in recent months. Amid this pandemic, investors have been pouring cash into GOLF with the pent-up US population filling the links as soon as they opened across the US. I think it may be time to pull some profits off the table as this stock surges past most analysts’ price targets. Despite the stock’s optimistic investors, analysts have been pulling down their earnings estimates for the next few years, pushing this stock down to a Zacks Rank #4 (Sell).
Acushnet had already been experiencing declines in both its top and bottom-lines in recent quarters, and analysts are projecting that its already paper-thin margins are going to flip negative in 2020 and toe the line of profitability in 2021.
Why I’m Pulling Profits
This pandemic may provide the golfing industry with a marginal uptick as people are looking for an outdoor outlet. Golf allows players to socialize, exercise, and enjoy the warm weather at a socially safe distance. Still, I do not think these shares deserve to be trading at all-time highs. The risk/reward at this level is not ideal, in my opinion, and a pullback in share price may be right on the horizon.
The biggest issue with this hyped up GOLF trade for me is that at the end of the day, it’s a retail business, and consumer discretionary spending is substantially hampered. There have been more than 40 million unemployment claims since the pandemic began, and I cannot see a short-term uptick in Acushnet’s demand sustaining. It will be difficult for consumers to justify spending money on golf equipment and appear when their job outlook is incredibly uncertain.
The enterprise balance sheet is nothing of a fortress with only $56 million in cash and $466 million in current liabilities. Acushnet does not have incredibly large cash-flows to sustain its obligations, and the business will likely be forced to dip heavily into its $400 million lines of revolving credit.
I would not be looking to buy this retail business at its all-time high amid the height of the retail apocalypse. If you are holding GOLF, I may think about pulling profits.
Should You Buy CrowdStrike (CRWD) on Coronavirus Cybersecurity Growth?
CrowdStrike stock has soared 70% in 2020 to crush its industry’s 30% climb. The cybersecurity firm’s growth looks poised to continue and the coronavirus-induced remote work environment has created different digital security concerns for businesses, school, and governments.
So, the question is should investors think about buying CrowdStrike stock ahead of its upcoming first quarter fiscal 2021 earnings release, due out after the market closes on Tuesday, June 2.
The Quick Pitch
CrowdStrike is a cloud-focused cybersecurity firm that utilizes machine learning and artificial intelligence to protect endpoints. CRWD aims to protect workloads “across on-premise, virtualized, and cloud-based environments running on a variety of endpoints such as laptops, desktops, servers, virtual machines, and Internet of Things, or IoT, devices.”
CRWD is set to expand within the booming cybersecurity space as threats continue to grow in an increasingly digitalized and interconnected world. For example, one estimate from Cybersecurity Ventures predictsthat the cost of global cybercrime damages will jump from $3 trillion in 2015 all the way to $6 trillion annually by 2021.
CrowdStrike last quarter reported a smaller-than-expected adjusted loss that also marked a big improvement from the year-ago period. Meanwhile, its total fiscal 2020 revenue skyrocketed 93%. The firm also added a record 870 net new subscription customers in Q4 to end its year with roughly 5,400 customers, up 116%.
Investors might also want to consider CrowdStrike as stay-at-home stock within a broader basket of firms from Zoom to Netflix. And the reasoning is pretty simple: businesses can’t afford to cut back on cybersecurity, especially as millions of people work from home and normal operations are disrupted.
CRWD went public in June 2019, and investors can see that it fell from August until November. CrowdStrike shares have bounced back since then. The stock is now up roughly 70% in 2020, which includes a 150% surge since mid-March. And CRWD shares soared 8% in morning trading Friday to around $86 a share. This gives it 15% more room to run before it reaches its 52-week highs.
Despite the recent climb, CrowdStrike’s valuation picture appears solid compared to where it has traded over the last year. CRWD is trading at 20.5X forward 12-month sales estimates, which marks a significant discount compared to its highs of 43X.
Moving on, our Zacks estimates call for CRWD’s first quarter revenue to jump 73% from the year-ago period to $165.94 million. Meanwhile, its adjusted loss is expected to shrink from -$0.47 to -$0.06 a share. These would both mark the continuation of strong top and bottom-line expansion.
Peeking further ahead, CrowdStrike’s full-year fiscal 2021 revenue is expected to climb another 52%. And CRWD’s adjusted fiscal year loss is expected to shrink from -$0.42 to -$0.12 per share. Better still, the company is projected to post positive adjusted earnings of +$0.14 in fiscal 2022.
CrowdStrike is currently a Zacks Rank #3 (Hold) that has seen its overall earnings outlook improve over the last 90 days. CRWD also sports “A” grades for both Growth and Momentum in our Style Scores system and it’s part of an industry that rests in the top 12% of our more than 250 Zacks industries. CrowdStrike has also easily topped our bottom-line estimates in the trailing three periods.
Clearly, playing stocks for near-term gains around earnings is risky, even for stocks that appear set to grow during the coronavirus economic downturn. That said, longer-term investors might want to consider CrowdStrike for its ability to grow within an industry that will only grow in importance.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it’s predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks’ 3 Best Stocks to Play This Trend >>
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Netflix, Inc. (NFLX) : Free Stock Analysis Report
Synopsys, Inc. (SNPS) : Free Stock Analysis Report
Acushnet Holdings Corp. (GOLF) : Free Stock Analysis Report
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
CrowdStrike Holdings Inc. (CRWD) : Free Stock Analysis Report
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