Synaptics: Sell The Stock, Jefferies Says

Synaptics (SYNA) shares are headed for a lower open this morning after Jeffereies analyst Blayne Curtis this morning downgraded shares of the producer of capacitive touch screens to Underperform from Hold, with a new price target of $16, down from $26. The stock closed yesterday at $23.42.

Curtis writes in a research note this morning that the downgrades reflects a mix shift to lower ASP modules in the PC side of the company’s business, and increasing competitive dynamics in the handset market that are negatively affecting market share and product mix. He says the situation will “get considerably worse into 2010 and significantly challenge the fundamental story going forward.”

Curtis thinks Q4 orders are tracking below guidance, “with stronger headwinds in 2010 due to share loss and a negative mix shift to modules likely driving another leg down in the stock.” The analyst estimates orders for Q4 at $130 million to $135 million, versus guidance at $140 million, due to inventory issues at LG and a delay in the ramp of two high profile wins - the Nokia X6 and the Research In Motion Storm 2.

While Curtis says the capacitive touch screen market is likely larger than previously estimated - the analyst now sees the market reaching 84 million screens this year and 188 million next year, up from 50 million and 100 million, respectively - a shift to chips from modules means trouble for Synaptics,

Curtis now sees EPS for the June 2010 fiscal year of $1.75, down from $1.88.

In early trading, SYNA is down $1.20, or 5%, to $22.22.