Oppenheimer: Synaptics' Near-Term Downside Appears Limited

Synaptics, Incorporated SYNA shares are down about 27 percent year-to-date, prompting an analyst to upgrade the stock on the premise that downside appears limited in the near term.

The Analyst

Oppenheimer analyst Andrew Uerkwitz upgraded shares of Synaptics from Underperfom to Perform.

The Thesis

Solid execution can offset temporary headwinds such as weak market positioning and anemic revenue opportunities, analyst Uerkwitz said in a Friday note. (See Uerkwitz' track record here.)

"Moreover, negative catalysts like share loss at SAMSUNG ELECTRONIC SSNLF (fingerprint) and Apple Inc. AAPL (DDIC) are well understood," he said.

The fingerprint market is projected to slowly decline in the mobile market, Uerkwitz said, although he said he expects Android OEMs to keep it as an alternative unlocking mechanism and for mobile payments.

Synaptics is expected to see one or two more years of sequential drop in its DDIC business before non-Samsung OLED manufacturers begin high volume production, Uerkwitz said. The analyst also views the company's TDDI business as pressured by competition.

"We see the next big incremental growth spurt from the introduction of an OLED TDDI solution but see this as a CY2019/2020 event," the analyst said.

Oppenheimer views IoT as the most volatile segment for Synaptics, as the company remains unproven despite its acquisition of proven assets, Uerkwitz said. The firm estimates 12 percent IoT revenues in 2019.

The consensus revenue estimate for 2019 could be lowered further, but the majority of the downside is already priced in, the analyst said.

"With that being several quarters away, we step to the sidelines and remove our $35 PT. We will watch how the company executes on the new initiatives."