Editors Note:

After reporting disappointing earnings in April takeover talks collapsed along with the shares. Synaptics is having a bad year with shares now trading at less than half the $110 buyout price discussed back in early April.



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SYNA - Synaptics Inc - Company Description

Synaptics Incorporated develops, markets, and sells intuitive human interface solutions for electronic devices and products worldwide. The company offers its human interface products solutions for mobile product applications, including smartphones, tablets, and touchscreen applications, as well as mobile, handheld, wireless, and entertainment devices; notebook applications; and other personal computer (PC) product applications, such as peripherals comprising keyboards, mice, and monitors, as well as remote control devices for desktops, PCs, and digital home applications.

Back in mid April Synaptics said it was in active discussions with a state-backed Chinese investment group on a deal that valued the company at $110 per share. The company said it was anticipating a formal announcement at month end when it reported earnings. Shares spikes 7% to $87.

On April 28th the company reported adjusted earnings of $1.21 per share compared to estimates for $1.51. Revenue of $402.5 million also missed estimates for $450.5 million. Shares collapsed $15 on the news to $68.

In early June the company said it was no longer in active talks with the Chinese group about an acquisition. On June 16th the company said it was laying off 160 employees and closing some offices. That is about 9% of the workforce. The company will have an $11 million charge for severance and take another $4 million charge for lease cancellation fees on the office rent. Synaptics said the move was to align the company's cost structure close to its revenue. The company said they had experienced a "sizeable revenue shortfall" in Q1 that would carry over into the current quarter. "We saw a precipitous drop in order levels within the smartphone market." They are a supplier to Apple.

Recent reports suggest Apple is still cutting component orders for the next iPhone due out in September so Synaptics revenue should still be in decline.

Shares closed at a 2-year low last week and earnings are July 28th.

I am recommending a September $45 put in order to avoid the sharp drop in front month premiums when July expires on Friday. I do not plan on holding over that earnings report. We are buying time but we are not going to use it.

Buy Sept $45 put, currently $3, initial stop loss $51.75