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Synaptics (SYNA) Q3 Earnings: Will the Stock Disappoint?

Zacks Equity Research

Synaptics Inc. SYNA is set to report third-quarter fiscal 2019 results on May 9.

The company’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 8.18%.

In the last reported quarter, the company delivered earnings of $1.55 per share, up 39.6% from the year-ago quarter and also beat the Zacks Consensus Estimate of $1.36. Moreover, revenues of $426 million also surpassed the Zacks Consensus Estimate of $425 million. However, the metric slipped 1% on a year-over-year basis.

However, the weak guidance provided by the company for the fiscal third quarter makes us anxious about its impending quarterly results.

Estimates and Guidance

For the fiscal third quarter, the company on its last earnings call had projected revenues in the range of $340-$380 million. However, it mentioned this March that it expects revenues to be near the lower end of the prior outlook as market demand softened through the quarter. The Zacks Consensus Estimate is pegged at $342.4 million, indicating a decline of 13% from the year-ago reported figure.

Management also anticipates earnings for the quarter under review to be at the lower end of the original guidance of 70 cents to a penny. The current Zacks Consensus Estimate of 71 cents for the period to be reported has been revised 17.4% downward over the past 60 days.

Synaptics Incorporated Price and EPS Surprise

Synaptics Incorporated Price and EPS Surprise | Synaptics Incorporated Quote

Let’s see how things are shaping up for this announcement.

Factors at Play

Synaptics’ third-quarter fiscal 2019 results might be hurt by a weakness in the mobile and IoT market.

The company is facing hurdles in the Mobile Products segment, primarily due to sluggishness in the smartphone market. As this particular segment is the major contributor to the company’s top line, revenues from the same in the to-be-reported quarter are likely to remain under pressure.

Soft iPhone or Chinese OEMs demand and shortages in Touch and Display Driver Integration (TDDI) products persist as major overhangs.

Moreover, downturn in the broader consumer IoT market, primarily due to the slowdown in demand for the smart speaker, is feared to dent quarterly revenues.

However, the company’s focus on diversifying its product mix with greater emphasis on maximizing profitability is a positive. Its acquisitions of Conexant Systems and Multimedia Solutions Business of Marvell Technology Group are also helping it expand its customer base.

Although dearth of component across the PC industry is a key challenge for Synaptics, the company is still benefiting from an increased content per PC through growing attach rates for its capacitive fingerprint solutions. This will lend a constant boost to the stock, especially in its upcoming quarterly results.

What the Model Says

The proven Zacks model clearly shows that any company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has significantly higher chances of beating estimates if it also has a positiveEarnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Synaptics has a Zacks Rank #4, which decreases the predictive power of ESP, along with a 0.00% ESP in the combination that further makes surprise prediction difficult for the stock this earnings season.

Stocks That Warrant a Look

Here are a few stocks worth considering as per our model, these have the right mix of elements to beat on earnings this reporting cycle:

Synopsys, Inc. SNPS has an Earnings ESP of +1.15% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuit Inc. INTU has an Earnings ESP of +0.59% and a Zacks Rank #2.

Agilent Technologies, Inc. A has an Earnings ESP of +2.10% and a Zacks Rank of 2.

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