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Why Synaptics Stock Popped Today

By Evan Niu, CFA – Jul 8, 2020 at 12:15PM

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The computing interface specialist gets an upgrade from Wall Street after announcing an acquisition.

What happened

Shares of Synaptics (SYNA 2.50%) have popped today, up by 12% as of noon EDT, after the company announced yesterday that it would acquire wireless Internet of Things (IoT) assets from Broadcom (AVGO 0.54%). The company hosted a webcast after the close to discuss the deal.

So what

Synaptics has agreed to purchase certain assets and manufacturing relationships related to Broadcom's IoT connectivity business for $250 million in cash. Broadcom's current portfolio of Wi-Fi, Bluetooth, and GPS/GNSS products will be included in the transaction, as will future products. Synaptics estimates that the deal will add around $65 million in annualized sales to the top line and be immediately accretive to adjusted gross margin and adjusted earnings per share.

Synaptics logo

Image source: Synaptics.

In the presentation with investors, management also noted that the acquisition would expand its addressable market and would be highly complementary with the company's current IoT portfolio and customer base. Synaptics is also getting a team of approximately 60 engineering support employees as part of the deal.

Now what

Synaptics is funding the deal with cash on hand after receiving $139 million from the recent divestiture of the mobile LCD TDDI business. The company also drew down $100 million from its credit revolver. The deal is expected to close in the first quarter of fiscal 2021 (the calendar third quarter), and no regulatory filings are expected.

Following the news, Rosenblatt upgraded its rating on Synaptics from neutral to buy this morning while increasing its price target from $66 to $73. Analyst Kevin Cassidy estimates that the deal will add $0.45 to $0.55 in earnings per share in fiscal 2021.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Synaptics Incorporated Stock Quote
Synaptics Incorporated
$101.22 (2.50%) $2.47
Broadcom Limited Stock Quote
Broadcom Limited
$464.75 (0.54%) $2.49

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