Why Synaptics, Incorporated Shares Will Hit $100

Does this analyst make a good case or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 25, 2014 at 2:31PM
Technology and Telecom

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Synaptics, Incorporated (NASDAQ:SYNA) gained slightly Friday morning after the touchscreen technologist posted strong Q3 results and received a buy-to-strong buy upgrade from Needham & Company.

So what: Along with the upgrade, analyst Rajvindra Gill boosted his price target to $100 (from $70), representing about 55% worth of upside to yesterday's close. So while contrarian traders might be turned off by Synaptics' price surge over the past year, Gill's call could reflect a sense on Wall Street that its growth potential still isn't fully baked into the valuation.

Now what: According to Needham, Synaptics' risk/reward remains particularly attractive. "SYNA posted a significant beat and raise qrt owing to substantial momentum in fingerprint and ongoing strength in its core touch biz," said Gill. "Over the next 12-24 months, we forecast the fingerprint business could add $2.50-$3.00 of incremental EPS, combined with $3.50-$4 EPS from core touch. Over the past 2.5 years, SYNA has transformed itself: growing from $598MM in sales in FY11 to a projected $1.15BN in FY15." More importantly, with Synaptics trading at a reasonable forward P/E of 15 and boasting a rock-solid balance sheet, the downside might still be limited enough to bet on that bullishness.