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Synaptics (SYNA) Q4 Earnings: Disappointment in the Cards?

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Synaptics Inc. (SYNA - Free Report) is set to report fourth-quarter 2017 results on Aug 3. In the trailing four quarters, the company has beaten the Zacks Consensus Estimates in two occasions, with an average positive surprise of 39.79%.

Last quarter, Synaptics reported a negative earnings surprise of 4.71%. However, revenues of $444.2 million beat the Zacks Consensus Estimate of $427 million and grew 10% on a year-over-year basis.

Management revised down its fourth-quarter fiscal 2017 guidance post the announcement of the acquisitions of Conexant Systems and Multimedia Solutions business of Marvell Technology Group in mid-June.

The company anticipates revenues in the range of $420–$430 million, slightly down from the midpoint of the previous guidance range of $410–$450 million.

Synaptics Incorporated Price and EPS Surprise


Synaptics Incorporated Price and EPS Surprise | Synaptics Incorporated Quote

However, management didn’t change the non-GAAP earnings projection of $1.05–$1.35 per share. The company expects the acquisitions to be gross margin accretive immediately, which probably was the reason behind the maintained earnings guidance.

We note that Synaptics has lost 1.8% of its value year to date versus the 26.8% growth of its industry.


Let’s see how things are shaping up for this announcement.

Factors at Play

Synaptics is primarily engaged in developing human interface solutions for a wide array of mobile computing and communications devices and is one of the leading suppliers of touchpads to the notebook computer market. The company’s clientele includes Apple (AAPL - Free Report) , Xiaomi, Samsung, Huawei and Lenovo, among others. We note that the strong adoption of Samsung’s Galaxy 8 handset is positive for Synaptics.

Synaptics remains focused on enhancing its Automotive Solutions and Touch and Display Driver Integration (TDDI) and fingerprint portfolio. Accretive acquisitions have been a key driver in this regard. We expect Synaptics to continue gaining from improved margins of each of its product lines.

However, sluggish display driver (DDIC) products business and smartphone demand in China are headwinds for Synaptics. Per market research firm GFK’s latest report, smartphone demand in China remained flat on a year-over-year basis at 110.1 million units in the second quarter of 2017.

Earnings Whispers

However, our proven model does not conclusively show that Synaptics is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Synaptics’s Earnings ESP is -6.76%. This is because the Most Accurate estimate is pegged at 69 cents per share, which is lower than the Zacks Consensus Estimate of 74 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Synaptics carries a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks which, as per our model, have the right combination of elements to post an earnings beat this quarter:

CACI International (CACI - Free Report) has an Earnings ESP of +1.83% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NetEase (NTES - Free Report) has an Earnings ESP of +0.25% and holds a Zacks Rank #2.

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