Tuesday, February 8, 2011

SanDisk: Sterne Agee Says Buy, $65 Target

Shares of SanDisk (SNDK) are up $1.20, or 2.5%, at $49 after Sterne Agee analyst Vijay Rakesh joined a growing chorus of positive views on the stock, raising his rating on the stock to Buy from Hold with a $65 price target. Rakesh writes that SanDisk is making progress on moving production of its NAND flash memory chips to 24 nanometer dimensions, and that the overall fundamentals for the flash industry appear stronger than previously was the case.

On the broad industry outlook, demand for NAND flash should continue to be strong thanks to the ever-increasing use of the chips in smartphones and tablet computers, while supply appears to be “at a measured pace,” writes Rakesh. NAND prices should be about flat in the second quarter versus the first quarter, which is better than his prior expectation for a 5% drop in prices.

As for SanDisk’s technology progress, the company is starting its 24 nanometer transition for both MLC and TLC flavors of flash memory, which should help it “get caught up” with the rest of the industry. At the same time, SanDisk will ofer a “3-bit (TLC) lead with 50% of output at TLC” that may become a material technology advantage for the ocmpany. ”

Rakesh raised his estimates for SanDisk to $1.4 billion in revenue and $1.22 in EPS for Q2, from $1.3 billion and $1.03, and raised his year estimate to $5.9 billion and $4.66 per share from a prior $5.6 billion and $4.03 per share.

But it’s still crucial to keep an eye on what happens to NAND capacity this year, he writes:

We believe NAND fab capacity and supply will be key metrics to watch, especially as Micron ramps its Singapore fab in March 2010. But we believe both the Samsung Line16 and Toshiba Fab5 are coming on only in 2H11 and will be key supply channels to monitor. While SNDK has become more prudent in watching its supply, key will be how Samsung behaves with its fab coming on line. We believe Hynix (000660.KS, 29700, Not Rated) still remains under pressure in bringing on NAND supply given a big debt load.

Mind you, Rakesh still prefers Advanced Micro Devices (AMD) and Micron Technology (MU) to SanDisk, noting they have “solid upside, [attractive] valuations, and potential share gains.”

Previously:
MU, SNDK: Gleacher Says Buy On Improving Memory Market, February 3rd, 2011;
SanDisk Recovers, Cheered By Q1, Year View, January 27th, 2011.

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