SYNA: Earnings, adjustments. Is it another gift?

I finally got a chance to take a deeper look into the latest SYNA results.

TTM EPS is $4.19 which gives a P/E of 14.3.

We should really add $0.09 to the Q2 2014 number due to one time acquisition costs which would result in a P/E of 14.0. But this figure includes the just reported Q3 2014 adj. EPS number of $0.63 (should it be higher???—see below).

I’m not sure how to figure the earnout and other one-time costs associated with the acquisition. Are there one-time expenses and if so they should be removed in calculating EPS (or have they been removed already to arrive at the adj. EPS figure?). Also, what are the anticipated remaining EPS hits that the company will take for their acquisition of the fingerprint business? In short what further adjustments should we be making to the $0.63 adj. EPS reported in Q3.

Also, the company guided Q4 2014 adj. EPS between $1.10 - $1.32. Q4 2013 adj. EPS was $1.39.

The P/E of 14 already looks really good. However, if further adjustments are needed then the current price of $60 may truly be a gift. Anyone know what adjustments are needed?

Chris

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Chris,

As far as I can understand their adjusted earnings (from looking in the last earnings release, reconciliation of GAAP and non-GAAP), they did take out the acquisition costs when figuring the adjusted earnings. However, as you say, it’s a very low price for a company growing that fast.

I think the issue is that for technology like that the prices continually come down, so they have to keep innovating to stay ahead of the pack. (It’s not like Coca Cola, for an extreme opposite example, where they can keep selling the same product forever).

Another part of the reason for the low PE may be that adjusted earnings were down year over year, in spite of them saying the acquisition was accretive, which I don’t understand, as the number of shares wasn’t up much.

At any rate, their fingerprint business seems to be booming beyond even their expectations, and they should do well for the foreseeable future.

Saul

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I think the issue is that for technology like that the prices continually come down, so they have to keep innovating to stay ahead of the pack. (It’s not like Coca Cola, for an extreme opposite example, where they can keep selling the same product forever).

That doesn’t explain it because their gross margins aren’t dropping that much. They did spend $10M on purchasing 2 buildings to house additional employees. I assume that this expense is non-recurring (we should verify that it’s non-recurring) and this represents a hit of $0.26 in EPS for Q3. If you back this out, their EPS would have been $0.89. Since they revenue increased by 25% over the comparable Q3, we would have expected EPS to be $0.99 without addition gains in operating leverage.

I’d love to try and understand this company’s earnings better. Based on my analysis and Chris’s it looks like the PE on SYNA is sub 15 but I’d like to understand the details of the operations better also.

The company appears to be hitting all cylinders especially given the addition of the finger print business. I feel upside surprises in the future however want to understand the numbers before doubling down.

Eric