Capacitive touch solutions provider, Synaptics Inc. (SYNA), delivered one of the most impressive reports of this earnings season after Thursday's close. While companies such as Angie's List Inc. (ANGI), Infinera Corp. (INFN), Stamps.com Inc. (STMP) and Netflix Inc. (NFLX) have each delivered impressive quarters, which propelled their stocks up 20-30% the following day, Synaptics' beat and raise is remarkable for a number of reasons.
Not only did Synaptics' Q3 EPS of $0.79 beat the consensus estimates of $0.57 by 40%, the company's forward guidance of $0.88-$1.00 on revenues of $190-$205 million was substantially higher than the Street's call for $0.62 on sales of $158.20 million. With both its top and bottom-line metrics accelerating, we believe Synaptics has the potential to earn $3.50-$4 in FY 2014. Right now, analyst estimates still stand at $2.56 a share. Notwithstanding its dramatic move higher in Thursday's post-market action, we feel the move in SYNA's stock is about to go into overdrive over the next 6 months. We see a quick move to $50-$55 over the next 4-6 weeks, followed by an ultimate move to $60 by the fall. Let's discuss:
Spurred by new design wins for the Samsung (OTC:SSNLF) Galaxy 4, along with market share gains with smartphone manufacturers such as BlackBerry (BBRY), Huawei, ZTE (OTCPK:ZTCOF), Lenovo (OTCPK:LNVGF) and HTC (OTC:HTCCY), Synaptics now appears poised to enjoy a meaningful 3-4 quarter ramp from here. Forward estimates will be forced to rise considerably. Moreover, given that SYNA is preparing to launch new product initiatives for its struggling notebook vertical in the second half of this year, the stage has been set for another beat and raise when the company reports its FY 2013 annual report in early August.
While Uni-Pixel Inc. (UNXL), NeoNode Inc. (NEON) and Atmel Corp. (ATML) have garnered much of the attention from investors within the touch space, Synaptics has been quietly grabbing impressive market share. With SYNA beating out Atmel on the Galaxy 4 and taking share from its competitors, we believe the stock will enjoy an upward expansion in its overall valuation. When you factor in Synaptics' buttressed balance sheet of $10 a share and its potential to earn $3.50-$4 next year, suddenly it is easy to see how SYNA shares could enjoy considerable and rapid upside from its after-hours price of $45.55.
During the Synaptics' conference call with investors, SYNA's management team confirmed that it is the single source supplier to Samsung for the Galaxy 4. Management also confidently asserted that their customer base has broadened considerably and additional market share gains are expected within the mobile space in the coming quarters.
Turning to the company's struggling PC division, this side of the business should also see some momentum build in the second half of this year as SYNA's new product introductions begin to gain traction. The new ForcePad, ThinTouch, and ClearPad products should each help Synaptics achieve year-over-year growth in the second half of this calendar year.
Taken together, Synaptics has tremendous momentum heading into the remainder of this year and well into 2014. In a market starved for growth, this increasing momentum should be amply rewarded by momentum investors over the coming quarters. A look at SYNA's technicals reveals a stock trading at all-time highs and a definitive breakout from a massive 10-year base:
SYNA 10 Year Chart
Source: The Charles Schwab Corp.
With 3 million shares short and only 32 million shares outstanding, we expect to see SYNA move quickly through $50 over the next few weeks. $55 seems like a logical first stop for the stock. Longer-term, a move into the $60s seems very feasible.
Some risks should certainly be noted. First, Synaptics has never operated at these revenue levels before. Execution risk is therefore something to consider. With declining ASPs for its solutions, competitive forces could eventually result in pricing pressure that could harm margins in the future.
Thankfully, the SYNA's management team seems to be well on top of these potential risks. It has steered the company to an enviable growth position that should transform its stock into a market darling over these next few quarters. We are patiently long and look forward to seeing this story play out throughout 2013.