Inside Wall Street: Synaptics hasn't popped yet
Demand is increasing for the company's touch sensor technology for smartphones.
One technology stock that has surprised on the upside is Synaptics (SYNA), rocketing from a 52-week low of $22.58 a share in late 2012 to a high of $45 in 2013, as it raised its revenue guidance for its next fiscal quarter.
Synaptics, a fabless semiconductor company, provides capacitive touch sensor technology for notebook, PCs, mobile handsets, portable media players, and other consumer electronics.
Some Wall Street watchers of the company, who pleasantly welcomed the upbeat forecast, now say the stock still has a ways to go as demand for its cell phone touch screen sensors gains more speed.
"Synaptics has dominated the laptop touch pad market, but it's now coming on strong in smartphones, with market share gains at Samsung and other cell phone original-equipment makers because of its superior touch technology," says Graham Tanaka, president of Tanaka Capital. The stock is one of the largest holdings in Tanaka's highly ranked TANAKA Growth Fund, which was up 22.3% in 2012.
Tanaka says Synaptics' technology is also gaining market share in tablet computers. "We think Wall Street estimates on the company are conservative, particularly because analysts have become concerned by the recent downward revisions in their estimates for Samsung Galaxy S4 deliveries over the near term," he says. But "our industry checks suggest that Synaptics is 'knocking the cover off the ball' in the smartphone space," Tanaka points out.
Synaptics won the Samsung Galaxy S4 touch business with its strong technologies, says Tanaka, including the patented "Hover" product. The company has "a strong new product roadmap and in the next year may gain a foothold in the new touch laptop market," explains Tanaka. He also notes that the tablet market is still early in its product cycle, and sports higher average selling prices and strong margins as the touch display surface areas are larger than displays for touch pads and smartphones.
The stock is still cheap, say the bulls, trading below its post-earnings levels. "We believe the market is still not giving Synaptics credit for the huge Galaxy S4 platform," says Rajvindra S. Gill, analyst at investment and securities firm Needham, who rates the stock as a buy. The company defied the skeptics, Gill says, raising its fiscal fourth quarterly guidance by 15% -- above the Wall Street consensus estimate.
Synaptics raised its revenue guidance for the fiscal June quarter (its fiscal year ends June 30) to between $227 million and $230 million, thanks to higher-than-expected mobile revenue across multiple customers. So Gill raised Needham's fourth quarter revenue estimates to $228 million and earnings to $1.34 a share, from $190 million and 86 cents a share, respectively.
For all of fiscal 2013, Gill has raised revenue estimates to $661.9 million and earnings to $3.04 a share, from $623 million and $2.55, respectively. In fiscal 2012, Synaptics' revenue totaled $548.2 million and earnings of $2.29 a share. For fiscal 2014, Gill boosted revenue estimates to $830 million and earnings to $4 a share, from $780 million and $3.45 a share, respectively.
Analyst Kevin E. Cassidy of investment firm Stifel, who recommends a "buy" on Synaptics stock, raised his stock price target to $56 a share from $48, based on his raised fiscal 2013 earnings projection of $3.05 on revenue of $630.9 million. For fiscal 2014, he figures Synaptics' earnings will jump to $3.59 a share on revenue of $810 million.
"While Samsung has been lowering its Samsung S4 unit shipment expectations, it appears other Synaptics-enabled models are shipping above expectations," says Cassidy. "We continue recommending investors to own SYNA shares as the company is in the early stages of a strong new product cycle," he adds.
Synaptics is expected to resume its leadership in touch technology this year, says Liwen (Lena) Zhang, analyst at investment firm Blaylock Robert Van, who rates the stock a strong "buy." "We continue to like SYNA given its leadership in smartphones outside of iPhones," says the analyst, "and a share gainer in tablets and penetration in touch notebooks for its mobile business." Zhang's price target for the stock: $56 a share.
In sum, Synaptics may be the next tech stock that Wall Street will add to its favored in these times of touch-screen technology.
Gene Marcial wrote the column “Inside Wall Street” for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.
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