Even though investors rotated out of expensive tech stocks last month and earlier this month, the tech-heavy Nasdaq gained yesterday driven by stellar third-quarter earnings reports. According to a Factset report, more S&P 500 companies are exceeding EPS estimates for the third quarter than on average and beating EPS estimates by a wider margin than on average.
Furthermore, the tech industry is expected to grow in the near future due to the increasing applications of smart technology solutions across several industries. Wedbush analyst Dan Ives said, “We continue to believe this pressure on the tech sector is short-lived with our belief that tech stocks will be up 10% into year-end as the tech growth stories are being massively underestimated by the Street with 3Q earnings a major positive catalyst for the tech sector.”
Analog Devices, Inc. (ADI)
Semiconductor company ADI designs, manufactures, tests and markets integrated circuits, software, and subsystems that leverage analog, mixed-signal, and digital signal processing technologies. The Norwood, Mass.-based company’s IC product portfolio includes general-purpose products and application-specific products designed for specific target markets.
On August 26, 2021, ADI acquired Maxim Integrated Products Inc. (MXIM). The acquisition is expected to bolster ADI’s position as a high-performance analog semiconductor maker. Also, the synergy derived from the acquisition is expected to strengthen ADI’s efforts in developing even more cutting-edge solutions for its customers.
For the third quarter, ended July 31, 2021, ADI’s revenues came in at $1.76 billion, up 21% year-over-year. The company’s adjusted operating income grew 24% year-over-year to $766 million. Also, its adjusted EPS increased 26% year-over-year to $1.72.
Analysts expect ADI’s revenue and EPS to increase 30% and 30.8%, respectively, year-over-year to $7.28 billion and $6.42 in its fiscal year 2021. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 45.3% in price over the past year to close yesterday’s trading session at $180.52.
ADI’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ADI has a B grade for Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #40 of 98 stocks. Click here to see the additional POWR ratings for ADI (Growth, Value, Momentum, Stability, and Sentiment).
VMware Inc. (VMW)
VMW is a Palo Alto, Calif.-based software provider in hybrid and multi-cloud, modern applications, networking, security, and digital workspaces. It has strategic alliances with Amazon Web Services to build and deliver an integrated hybrid solution. In addition, it sells its products through distributors, resellers, system vendors, and systems integrators.
On September 21, 2021, VMW announced that VMware Cloud on AWS GovCloud (US) had achieved FedRAMP Agency Authority to Operate (ATO) at the High Impact Level. Lynn Martin, vice president of government, education, and healthcare at VMW, said, “Achieving this certification for VMware Cloud on AWS GovCloud (US) is a significant testament to the value that government agencies can realize by moving to the cloud.”
VMW’s revenues came in at $3.14 billion in its fiscal second quarter, ended July 30, 2021, representing a 9% year-over-year increase. The company’s Subscription and SaaS revenue increased 23% year-over-year to $776 million. Also, its Subscription and SaaS ARR was $3.15 billion, up 26% year-over-year.
VMW’s EPS is expected to be $7.45 in its fiscal year 2023, representing a 7.3% year-over-year increase. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 8.9% year-over-year to $12.81 billion in its fiscal 2022. Over the past nine months, the stock has gained 19.8% in price to close yesterday’s session at $163.25.
It’s no surprise that VMW has an overall B rating, which translates to a Buy in our POWR rating system. It has a grade of A for Quality, and a B grade for Value.
Synopsys Inc. (SNPS)
Software products and services provider SNPS supplies electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs). The Mountain View, Calif., company offers semiconductor intellectual property (IP) products. It is also a provider of software tools and serves the electronics, financial services, automotive, medicine, energy, and industrial sector.
On October 20, 2021, SNPS expanded its strategic technology collaboration with TSMC to deliver the next level in system integration to address the increasingly critical performance, power, and area targets for high-performance computing applications. This could lead to increasing demand for this solution in the coming months.
SNPS’ revenues surged 9.7% year-over-year to $1.06 billion for its fiscal third quarter, ended July 31, 2021. The company’s adjusted net income was $284.5 million, up 4.6% year-over-year. Also, its adjusted EPS grew 4% year-over-year to $1.81.
For its fiscal year 2021, analysts expect SNPS’ EPS and revenue to increase 22.9% and 14%, respectively, year-over-year to $6.82 and $4.20 billion. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 42.9% in price to close yesterday’s session at $324.
SNPS’ strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which translates to a Buy in our proprietary rating system. It has an A grade for Quality, and a B grade for Sentiment and Stability.
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ADI shares were trading at $180.69 per share on Tuesday afternoon, up $0.17 (+0.09%). Year-to-date, ADI has gained 23.88%, versus a 23.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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