Synopsys (NASDAQ: SNPS) Buyback Program Takes Stock to Fresh Highs

Shares of Synopsys (NASDAQ: SNPS), the $3 billion Silicon Valley tech company, were the best performers in the NASDAQ 100 during Monday’s session with a 5% jump. They’re now up 9% over the past two weeks and more than 80% from the lows of March. It’s an astonishing thing to be able to say but in the grand scheme of this recovery from the first wave of COVID-19, theirs isn’t the biggest jump.

Still, it’s impressive nonetheless, with an all-time high being hit on Friday which was almost bested in yesterday’s session already.

Strong Trend

Coming into COVID-19, shares had been on a steady and consistent march higher, logging a 50% rally in 2016 and 40% in 2017. Some sideways action in 2018 was quickly forgotten when 2019 saw a 70% jump. As the experts say, the trend is your friend, and even with a 30% drop over just five weeks in Q1, shares are still up 40% for 2020.

The current jump is being driven by news on Friday that management has replenished its stock repurchase program to the tune of $500 million. CFO Trac Pham struck an unsurprisingly bullish tone when he said with the news that “we continue to execute well on our strategy to balance strategic investments to grow the business, expand margins, and return capital to stockholders." The latter has certainly bought into the mission and are duly rewarding management for rewarding them.

There’s every reason to think the trend will remain strong on this one for a while yet, with the company’s fiscal Q2 earnings report painting a healthy picture at the end of May. Both EPS and revenue came in ahead of analyst expectations with the latter up more than 3% year on year - not a bad result for a quarter that withstood one of the biggest and vicious market crashes in history.

Bullish Tones

Wall Street had plenty to be positive about with co-CEO Aart de Geus’ notes from the release; “even as the world grapples with unprecedented challenges, chip and system design activity remain robust. With a resilient business model and strong balance sheet, Synopsys is well-positioned to reaffirm our 2020 revenue and non-GAAP operating margin guidance and raise our non-GAAP earnings-per-share and operating cash flow targets.”

Even while many companies were slashing the 2020 guidance or canceling it altogether, Synopsys’ management felt strong enough to raise theirs, one of the strongest signals a non-dividend paying company can do.

Sky’s The Limit

Since their last earnings report, the bulls have been given an additional boost from RBC, who raised their price target on the stock from $185 to $210 last week while reiterating their Outperform rating. With shares closing out Monday’s session at $193, it’s clear the bulls have accepted their challenge. RBC analyst Mitch Stevens was particularly bullish on Synopsys’ niche market, calling electronic design and automation the safest space in semiconductors while expecting big things over the next five years.

What all this means for investors still on the sidelines is that even with shares at all-time highs, you can’t help but feel there’s value to be had here. The stock has a solid track record of knocking out double-digit percentage annual moves and with Friday’s news, investors know that management is behind their capital appreciation goals 100%.