Zacks bull of the day: Synaptics
As Samsung phone sales grow in Asia and the U.S. with each rollout of new devices, Synaptics looks to benefit.
What's the most appealing feature of our smartphones, besides their ability to keep us connected and informed? Arguably it is the touchscreen -- which allows us to glide effortlessly through our favorite forms of communication, information, and entertainment.
Synaptics (SYNA) is one of the key developers of touchscreen technology, with Samsung (SSNLF) smartphones as a primary customer. As Samsung phone sales grow in Asia and the U.S. with each roll-out of new devices, Synaptics looks to benefit.
And recent uncertainty about whether SYNA would face new competition in this role has settled on the idea that they will be the top supplier, even though Samsung may always have to contract with multiple technology vendors. Plus, there is now speculation SNYA technology will be featured in the latest Samsung tablets and notebooks due this fall.
I last wrote about SYNA as a Zacks #1 Rank in late June -- the day before the company raised guidance and thereby launched the stock up over 15% the next day. This week, SYNA has returned to the top 5% of companies which have the highest earnings momentum.
And Wall Street analysts have recognized the company's earnings growth potential, as you can see in their ramp-up of estimates for this year and the next in the chart below.
The PC is dead, long live the touch PC
Five years ago, Synaptics derived 3/4 of its revenue from desktop products. Today, smartphone technology dominates sales. But the company is still evolving with the PC industry to meet the demands of devices where consumers want better interaction.
As a leading developer of human interface solutions which enhance the user experience, Synaptics provides the broadest touch solutions portfolio in the industry. The ClearPad family supports touchscreen solutions for devices ranging from entry-level mobile phones to flagship premium smartphones, tablets and notebook PCs.
The TouchPad family, including ClickPad and ForcePad, is integrated into the majority of today's notebook PCs. Synaptics’ wide portfolio also includes ThinTouch supporting thin and light keyboard solutions, as well as key technologies for next generation touch-enabled video and display applications.
"Capacitive touch has become the de facto human interface for today’s small form factor computing devices like smartphones and tablets, but has seen slower integration in larger computing devices due to design challenges and high costs," said Kevin Barber, senior vice president and general manager, Smart Display Division (SDD), Synaptics.
"With the introduction of the game changing ClearPad S7500, barriers are broken down," he added, "making it simple and cost-effective for OEMs to embrace the large touchscreen for a range of new computing devices and form factors.”
On a path to new highs
Synaptics surged to record revenues of $230 million in the recent quarter. And while the stock is threatening a sustained breakout above its double-top highs of 2007 and 2009 at around $41, it is trading below its five-year average valuation of multiple of roughly 14 times.
Investors appear to be waiting for the next product releases from Samsung to make their move. But the estimates say that now is the time to jump on board -- with three major technology analysts bumping their 6-12 month price targets to between $54 and $57.
That is potentially over 35% upside from Monday's close of $40.25. Short-term traders may see good opportunity here if they can accept a risk-reward ratio of 1-to-1 (stock falls to $35) and they seek to gain less than half of that 35%, looking for a test of this year's high above $45.
Then again, if we get a breakout above $45, I'd hang on for a lot more.
Disclosure: I own shares of SYNA for the Zacks Follow The Money portfolio, which tracks institutional buying in growth stocks with strong earnings momentum.
Kevin Cook is a Senior Stock Strategist with Zacks.com
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