Bull of the Day: Synaptics (SYNA) - Bull of the Day

At the Consumer Electronics Show in Las Vegas this week, technology and gadget aficionados of all types have been discovering what's hot and what's not in everything from personal wearable technology and health devices to 3D printing and robotics, and all kinds of stuff that makes your home and car seem smarter.

Many companies don't make the gadgets that get all the "ooo's" and "ahh's." They just provide the software and hardware that make the magic possible, like Microsoft (MSFT) or Intel (INTC).

One company you may not have heard of is Synaptics (SYNA), the leading innovator in touch technology for PCs, notebooks, and smartphones. But some investors and analysts were certainly paying attention to SYNA's display of its 2013 milestones and new innovations like fingerprint authentication and gesture control (hover and swipe functionality) for devices.

The stock shot up over 9% on big volume January 7 as the company showed off its wares in a "by-appointment-only" private meeting space at CES.

Human Interface Space

Synaptics "human interface" products enable users to interact more easily and intuitively with smartphones, notebooks, tablets, and other portable multi-media devices and allow simpler, more elegant designs for consumer electronics and appliances.

SYNA has the leading share in smartphone touch controllers and estimates they supply touch pads and other pointing interfaces for more than 65% of the worldwide notebook market.

Here are several of the company's industry-first solutions to commercially debut in 2013...

ClearPad 3350 : The industry's first full High-Definition (HD) In-Cell touchscreen is powered by the ClearPad 3350 single-chip touch controller solution, which integrates touch directly in the display, delivering Nexus 5 users best-in-class touch sensitivity and a 10-finger multi-touch experience.

ClearPad Single-Layer On-Cell (SLOC) : The ClearPad SLOC solution is the first to fuse the touch sensor and liquid crystal display (LCD) together into one sleek stack-up, enabling thinner, lighter smartphone designs that became commercially available for the first time in 2013 via the Moto G and Yulong's Coolpad, entry-level 8908 smartphone for the China market.

3D-Touch : Powering the Samsung Galaxy S4 in 2013 as AirView™, this gesture technology expands user interface possibilities with proximity, finger hover and air swipe functionality.

TypeGuard : TypeGuard software technology virtually eliminates false cursor movements, accidental taps and false edge scrolls by differentiating between a finger and a palm, giving users a more accurate response during everyday use.

ForcePad : Synaptics' award-winning, pressure-sensitive TouchPad for notebook PCs, which includes TypeGuard, brings a new dimension of control to users and became commercially available for the first time in 2013 with a leading OEM.

ClickPad 2.0 : Named as an International CES Innovation 2014 Design and Engineering Award Honoree, ClickPad 2.0 with TypeGuard is the most advanced capacitive-sensing notebook TouchPad technology available with a leading OEM, delivering best in class durability and the industry's most responsive and consistent click performance.

Analysts Raising Estimates and Price Targets

Several analysts published fresh reports this week after meeting with Synaptics at CES. It seems getting their hands on the technology and seeing it in action helped crystallize their thinking when it comes to sales projections and potential market share.

JPMorgan analysts said they came away "incrementally constructive regarding the firm's growth prospects in all segments." They admire SYNA's strong momentum in the China handset market and given the pending introduction of new products in the second half, they see potential to their EPS estimates. They only raised their price target for SYNA shares to $55.50, but they reiterated their Overweight rating.

Oppenheimer analysts said they "tried several new products and each (innovations in hover technology, accurate-within 1 mm stylus, touch capabilities in keys-like the spacebar, and multiple iterations of fingerprint sensors) shows that the company is staying ahead of competition." They maintain an Outperform rating and $55 PT on shares.

Cowen analysts are very enthusiastic about SYNA's continued presence in high-end devices and their market share gains in China noting that a "broad range of technologies helps cover multiple price points." They also note that the company's innovation maintains leadership in touchpads and notebooks.

But looking forward at the fingerprint sensor market, they say "Excluding Apple (AAPL), the fingerprint sensor TAM (total addressable market) is seen growing from 150MM units this year to 530MM units in 2016 across smartphones, tablets and notebooks." They like SYNA's positioning for this growth and have a $64 PT on the shares.

Dougherty & Co. analysts put out a report this week with SYNA as #1 of their top 9 picks for 1H14 sharing this view...

"We believe Synaptics - already the largest touchscreen controller supplier for mobile devices - is likely to emerge in 2014 as the highest volume supplier of fingerprint sensors for mobile devices. That could increase SYNA's content from $1.75 per device to $3.75-$5.75 per device."

"We estimate that about 1B Android devices will ship in 2014. Thus, every 10% of that market could be worth as much as $400MM of incremental revenue and $2.65 of incremental EPS at 30% incremental margins. Consensus for CY14 is $859MM/$3.61 with very little contribution, we believe, from fingerprint sensors. Thus, we believe there is significant upside to current estimates."

They think shares are very attractive at current valuations and have a $65 PT.

Your Second Chance at SYNA

When Synaptics reported 1QFY14 earnings in late October, they warned that 2QFY14 could be lighter than previous guidance. The stock gapped down from $53 to $44, nearly 17%. After pocketing 20% on SYNA in the September-October surge, I was quick to look at the company again.

I read the guidance and rationale and thought the stock drop was a huge overreaction given its growth catalysts. So I picked up a full position in shares below $45 for the FTM Portfolio at Zacks.

Needless to say, we were very pleased this week with the response of investors and analysts to SYNA's CES presentations. And the fact that the stock closed above that October gap doesn't hurt either. We see a strong probability of being able to ride these shares to $60 in the first half of 2014.

Disclosure: I own shares of SYNA for the Zacks FTM Portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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