Despite 'Solid' Q2, JPMorgan Downgrades Synaptics

Touchpad and biometrics developer Synaptics, Incorporated SYMC reported Thursday with "solid" second-quarter results, but a lack of visibility prompted JPMorgan to drop its bullish stance on the stock. 

The Analyst

JPMorgan's Paul Coster downgraded Synaptics from Overweight to Neutral with a price target lowered from $55 to $50.

The Thesis

Synaptics reported a top-and-bottom-line beat in its Q2 report along with a 309-basis point improvement in PF gross margins to 38.9 percent, Coster said in the downgrade note.

PF operating margins also improved 423 basis points to 14.5 percent due to lower operating expense levels, the analyst said.

The company bought back $38 million worth of stock, generated $54 million in free cash flow and exited the quarter with two times debt/TTM PF EBITDA at $176 million, according to JPMorgan. 

Despite an encouraging quarter, the Q3 EPS and revenue guidance both fell short of expectations, Coster said. 

Synaptics said it expects to earn PF EPS of 70 cents to $1 on revenue of $361 million versus JPMorgan's prior model of $1.04 per share and $410 million, respectively. 

The soft guidance for the coming quarter, coupled with an unclear timeline of the next original equipment manufacturer cycle and ongoing uncertainty related to the Sino-American trade dispute, implies a bullish stance cannot be justified, according to JPMorgan.

Price Action

Synaptics shares were up 3.16 percent at $42.15 at the time of publication Friday. 

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