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Why Synaptics Stock Popped Today

By Evan Niu, CFA – Jul 21, 2020 at 1:15PM

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The technology interface specialist is acquiring DisplayLink.

What happened

Shares of Synaptics (SYNA 3.11%) have popped today, up by 8% as of 12:10 p.m. EDT, after the company announced yesterday evening that it will acquire DisplayLink. The deal will strengthen Synaptics' video interface technology.

So what

Synaptics will scoop up DisplayLink for $305 million in cash. The transaction will add roughly $94 million in annualized sales to Synaptics' top line and is expected to be immediately accretive to adjusted gross margin, adjusted operating margin, and adjusted earnings per share. DisplayLink's technology allows devices to be docked and transmit high-bandwidth video using a variety of connectivity mediums.

Synaptics logo

Image source: Synaptics.

"Several market trends such as work from home (WFH), bring your own device (BYOD) and office hoteling coupled with the growing need for multiple, high resolution displays in enterprises are driving demand for universal docking and casting solutions," Synaptics CEO Michael Hurlston said in a statement. "DisplayLink's track record of success and strong market validation coupled with Synaptics' leadership in commercial docking solutions positions us well to capitalize on these trends and deliver compelling solutions to our combined customer base."

Now what

The news comes shortly after Synaptics agreed to buy Broadcom's Internet of Things (IoT) connectivity business earlier this month. Both deals are part of the company's long-term IoT diversification strategy. Synaptics said it will fund the deal with cash on hand without needing outside financing and will have over $150 million in cash after both acquisitions are completed.

Synergies are estimated at $15 million, which should help Synaptics achieve adjusted operating margin of over 40% and add approximately $1 to adjusted earnings per share annually. The acquisition is expected to close in the first quarter of 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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