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What's in the Cards for Synaptics (SYNA) in Q3 Earnings?

Synaptics Inc SYNA is set to report third-quarter fiscal 2016 results on Apr 28. Last quarter, the company posted in-line earnings. The company has posted an average negative earnings surprise of 2.12% over the trailing four quarters.

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

Factors to Consider

Sluggish macro-economic backdrop and weakness in the high-to-mid segment smartphone market will weigh on the company’s DDIC business. Though the company won a large number of contracts for its display driver and fingerprint authentication products, it will face significant pricing pressure in 2016 that is unlikely to be counterbalanced by TDDI (Touch and Display Driver Integration) opportunity. In the last few months, Synaptics has inked deals with Microsoft Corp. MSFT Xiaomi and Lenovo among others.

Also, increasing competition, and the ongoing uncertainty in the Chinese economy can prove to be a headwind for the company as it derives a significant portion of revenues from the region.

However, analysts’ state that a buyout, speculations of which have been around for some time, should be positive for the company. Also, a strong shareholder repurchase plan will cushion the company’s earnings. Moreover, strategic acquisitions like Renesas SP Drivers, which have greatly expanded its offerings, are added positives.

Earnings Whispers

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, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: Synaptics currently has an ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.21 per share.

Zacks Rank: Synaptics has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.

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

Stocks to Consider:

You may consider the following stocks as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Silicon Motion Technology Corp. SIMO has an Earnings ESP of +7.27% and a Zacks Rank #1 (Strong Buy).

GoDaddy Inc. GDDY has an Earnings ESP of +33.33% and a Zacks Rank #2 (Buy).

 

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SYNAPTICS INC (SYNA): Free Stock Analysis Report
 
MICROSOFT CORP (MSFT): Free Stock Analysis Report
 
SILICON MOTION (SIMO): Free Stock Analysis Report
 
GODADDY INC-A (GDDY): Free Stock Analysis Report
 
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