Synaptics, Incorporated: Tech Stock Selloff Puts This 5G Play in Great Range

Why Synaptics Stock Is Set to Rally

Synaptics, Incorporated (NASDAQ:SYNA) is an excellent semiconductor stock that we at Profit Confidential have been watching for years. When my colleague George Leong wrote about SYNA stock in September 2016, it was trading at $58.50. When I wrote about Synaptics in June 2021, it was trading at $145.26 per share.

Synaptics stock has ripped considerably higher since then. In December 2021, it hit a record high of $299.39. That represents a 411% gain since George wrote about SYNA stock in September 2016 and a 106% gain since I wrote about it in June 2021.

Synaptics stock has been making consistently strong gains ever since Synaptics, Incorporated appointed Michael Hurlston as CEO in early August 2019.

Between early August 2019 and now, the stock has exploded by 612%. To put that in perspective, SYNA stock has rallied by almost one percent for each trading day Hurlston has been president and CEO of Synaptics.

Synaptics stock didn’t rally simply because investors thought Hurlston was a great guy. Since Hurlston took the helm of Synaptics, Incorporated, he has helped transform it from a provider of semiconductor chips for mobile phone screens, personal computer (PC) touchpads, and fingerprint scanners into a company with a large footprint in the Internet of Things (IoT) sector.

For investors who missed that rally, there’s still an opportunity to catch the Synaptics wave. Since the broader tech sell-off in early 2022, SYNA stock has tumbled by 34%. That pullback has erased three months of gains and has put the stock in a better trading range.

Synaptics stock’s lower price, of course, has nothing to do with Synaptics, Incorporated’s operations. Instead, the sell-off has been a result of higher interest rates, soaring inflation, microchip shortages, the COVID-19 pandemic, and—more recently— the Russian invasion of Ukraine.

Despite the sell-off, SYNA stock is still up by 21% over the last six months and 55% year-over-year.

The outlook for Synaptics stock is solid. Of the analysts offering a 12-month share-price target for Synaptics, Incorporated, their average price target is $296.11 and their high estimate is $345.00. This points to potential gains of 41% and 65%, respectively.

Chart courtesy of StockCharts.com

About SYNA Stock

Synaptics develops custom-designed semiconductor solutions that enable people to interact with a wide range of electronic devices, including cameras, headsets, laptops, smartphones, vehicle dashboards, and voice assistants. (Source: “Expanding Range of Applications,” Synaptics, Incorporated, last accessed February 28, 2022.)

One of the markets the company operates in is the Internet of things (IoT) segment, which includes devices with touch, display, voice, speech, video biometrics, and multimedia capabilities.

Synaptics, Incorporated’s aforementioned diversification strategy has been accelerated by a series of strategic acquisitions.

In early July 2020, the company announced that it would be acquiring Broadcom Inc’s (NASDAQ:AVGO) wireless IoT division for $250.0 million. Synaptics expected the deal to add about $65.0 million in annualized sales. (Source: “Synaptics to Acquire Rights to Broadcom’s Wireless IoT Connectivity Business,” Synaptics, Incorporated, July 7, 2020.)

In the second half of July 2020, Synaptics announced that it would be acquiring DisplayLink Corp. for $305.0 million. Synaptics expected this acquisition to add $94.0 million in annualized sales. (Source: “Synaptics to Acquire DisplayLink, Extending Video Interface Market Leadership,” Synaptics, Incorporated, July 20, 2020.)

In December 2021, the company completed its third major acquisition, paying $549.0 million for DSP Group, Inc. DSP has a leading position in numerous Internet of Audio Things (IoAT) and wireless IoT device sectors. (Source: “Synaptics Completes Acquisition of DSP Group and Updates Current Guidance,” Synaptics, Incorporated, December 2, 2021.)

These moves have expanded Synaptics’ offerings, including virtual-reality headsets, video interfaces, automotive displays, voice-recognition systems, smart displays, smart speakers, media streamers, and IP cameras.

Synaptics’ expanded range of applications should give the company an even bigger foothold in the emerging metaverse.

Better-Than-Expected Q2 Results

For the second quarter of fiscal 2022 ended December 25, 2021, Synaptics announced that its revenue increased by 17.5% year-over-year to $420.5 million. (Source: “Synaptics Reports Second Quarter Fiscal 2022 Results,” Synaptics, Incorporated, February 3, 2022.)

The company’s IoT revenue in the quarter went up by 60% year-over-year and resulted in an annual run rate of $1.0 billion.

Synaptics, Incorporated’s second-quarter 2022 net income was up by 40% year-over-year at $69.5 million, or $1.71 per share. Its adjusted net income in the second quarter of fiscal 2022 was a record $132.8 million, or $3.26 per diluted share.

The company’s gross margin in the second quarter of fiscal 2022 was $225.1 million, or a record 53.5%. Meanwhile, its adjusted gross margin was a record 59.5%.

Business Outlook

For the third quarter of fiscal 2022, Synaptics, Incorporated expects to report revenue in the range of $450.0 to $480.0 million. That represents year-over-year growth in the range of 38% to 47%.

“For our third quarter of fiscal year 2022, we expect to grow revenue again while maintaining our gross margin profile despite recent input price increases,” said Synaptics, Incorporated’s CFO, Dean Butler. (Source: Ibid.)

He added, “Our backlog remains strong with customer demand continuing to outpace supply availability; we have once again factored in the current semiconductor supply chain constraints and pricing changes into our March quarter guidance.”

Analyst Take

Synaptics, Incorporated is a diverse tech company operating in the 5G, IoT, IoAT, and metaverse markets.

Thanks to high demand and tight supply, the company has been reporting wonderful financial results. Its recent revenue figures could have been even higher, if not for supply chain constraints.

Synaptics, Incorporated is increasingly profitable. As discussed above, for the second quarter of fiscal 2022, the company reported record adjusted earnings per share and record adjusted gross margin.

All this bodes well for Synaptics stock.