Bull of the Day: Synaptics (SYNA) - Bull of the Day
Synaptics (SYNA), a $3 billion global leader in touch-screen and fingerprint sensor technology, gave investors a big surprise at the end of January when it delivered a 70% EPS beat.
It seems the perception on Wall Street was that if Samsung, a key customer, was struggling to compete with Apple (AAPL) in phones and tablets, then Synaptics must be behind the curve too.
As proof of investors misreading the fundamentals, SYNA shares gapped over 12% higher following their stellar fiscal 2nd-quarter 2015 report. And they haven't looked back, up nearly 35% for the year at the end of February.
Revenue of $464 million was up 64% vs the prior quarter and up 125% year-over-year, beating Street estimates by 3%. Revenue upside was driven by broad based strength across all Synaptics' markets. And the company gave guidance that was well above analyst expectations.
Here's a look at how SYNA EPS estimates have evolved since the report...
Note that the June quarter saw estimates get trimmed slightly, likely due to some seasonal factors. But the full fiscal year ending in June still saw estimates rise 10%. And the rise from $4.59 this year to consensus projections of $5.92 in FY16 represents 29% EPS growth.
Even the Bullish Analysts Were Surprised
In late August of last year, Barron's wrote a piece about SYNA shares having 35% upside from their current station in the low $80s. Having traded SYNA quite a bit in 2013 and 2014, I was already long the stock and couldn't help but agree.
But after a gap up to nearly $88 the following Monday on the post-Barron's enthusiasm, the shorts won the war and I watched in agony as the stock went into a 2-month slide that took it down to $59.
Two sell-side firms in particular, JPMorgan and Stifel Nicolaus, remained bullish on SYNA even during that slide from $90 back to $60 in the second half of last year.
Here's what those bulls had to say after SYNA's recent earnings stunner...
Stifel Nicolaus...
"In our view, management's strategy for becoming the market leader in human interface to computing devices is being realized at a faster pace than expected. This is resulting in accelerated revenue, gross margin and earnings growth. We estimate roughly 30% of Android Smartphones will have fingerprint recognition capabilities in 2015. We expect Synaptics can increase its technology advantage and capture the majority of these new designs. Also, management pointed to rapid adoption of their integrated touch and display driver (TDDI) products. This technology promises to both reduce LCD panel costs and improve performance. We recommend investors own SYNA shares as the company leads the market in these two new product developments."
The Stifel analysts raised their price target on shares from $87 to $93.
JPMorgan...
"Synaptics, our J.P. Morgan Equity Analyst Focus List pick on the long side, posted F2Q15 results that easily exceeded consensus and the positive preannouncement issued on December 9th. F3Q15 guidance was also well above expectations with strength in both legacy touch and the acquired fingerprint and display driver “hyper-growth” segments. RSP is accretive out of the gates, fingerprint area touch and TDDI solutions are now scaling, and adoption is diversified across multiple customers, mitigating the risk associated with prior dependence on Samsung. Following discussions with management, we believe SYNA is now on track to deliver ~$6.50 of PF EPS on about $2 billion of revenue in CY16. Sustained investment will enable SYNA to bring the acquired technologies together into an integrated solution set, re-establishing a sustainable leadership position in human interface technologies."
The JPM analysts raised their price target from $80 to $91.
The Barron's Angle
For what it's worth, here's some of what that August Barron's article focused on...
In 2013, some 30 million fingerprint sensors were sold industrywide, according to Synaptics. The company sees that figure booming to 530 million units in 2016. "Virtually every mobile customer or PC customer out there is looking at additional biometric or fingerprint solutions," CEO Rick Bergman told investors on a recent conference call.
Synaptics' own fingerprint revenue could grow 62% a year through 2017, according to Rajvindra Gill, a Needham analyst.
The Synaptics story goes well beyond fingerprints. In smartphones, the company has a 40% share of touchscreen controller chips, which sense and interpret the movement of fingers on a screen. It also controls 65% of the market for touchpads in notebook computers.
Bulls think those numbers are low. Needham's Gill says Synaptics' earnings could reach $10 a share within the next two years. He has a price target of $110 on the stock. "But realistically, I could see a stock that could get into the mid-$100s."
The Biometric Solution
The Needham analyst could not be reached for an update. Until I hear from him, I'll go with the more conservative views from JPMorgan and Stifel. And I'll bank on Synaptics continuing to innovate in the "human interface solutions" market as they did last week with this "biometric" enhancement to their offerings...
SAN JOSE, Calif. – February 24, 2015 – Synaptics Inc. (NASDAQ:SYNA), the leading developer of human interface solutions, today announced an all new implementation of fingerprint ID technology for mobile devices, designed to simplify the user experience for consumers and expand the market for biometric solutions. As an extension of Synaptics’ industry leading Natural ID™ product family, the VFS6170 slide sensor improves industrial design by integrating an ultra-slim biometric slide sensor on the side of a smartphone or tablet, enables single handed authentication, and further broadens the company's portfolio of fingerprint ID technologies available to OEMs.
With Synaptics VFS6170, OEMs have the ability to integrate an ultra-slim slide sensor on the side of the device, offering consumers a simplified and intuitive authentication method and giving users the ability to access their devices securely with a single handed thumb-swipe gesture. Additionally, Synaptics VFS6170 is designed to accelerate adoption in entry to mid-range devices by eliminating the need for a front glass cutout for the biometrics sensor, preserving the smooth-front industrial design and reducing total solution cost.
Billions and Billions of Devices in the Next 5 Years
Two other Technology stocks I have favored in the past few quarters (besides Apple) are Avago Technologies (AVGO) and Skyworks Solutions (SWKS). Both are Apple suppliers.
But both also have extensive revenue streams beyond Apple, with Avago serving enterprise customers with custom semiconductor solutions in networking and Skyworks creating the Internet of Things with RF (radio frequency) chip solutions to connect all of our devices between home, car, and wearables.
Because they both serve Apple and other smartphone customers, I am keenly aware of one trend in the mobile revolution: the world will be going through a major upgrade to 3G and 4G smart-device capability in the next few years. Tech-industry watchers Gartner say they expect 8 billion phones will be upgraded from 2G in the next 3 years.
While that guarantees a lot of RF chip content for Avago and Skyworks in smartphones and other devices, it also implies a lot more new touch-screens and fingerprint ID sensors in a whole lot more devices. Cue Carl Sagan and let's watch how quickly Synaptics can get to $2 billion in annual sales.
Disclosure: I own SYNA, AAPL, AVGO and SWKS for the Zacks FTM Trader.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money Trader.
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