SanDisk Corp. (SNDK) is a well known global leader in the manufacturer and sale of flash and solid state hard drives and memory storage devices, is competing capably with market darling Micron Technologies (MU), and recently collaborated with Toshiba to build a $4 billion dollar plant in Yokkaichi, Japan. The company has seen 52-week highs coming into this earnings season, with a $62 price tag pushing the upper bound of the envelope. Investors will be interested by the amount of support the stock has seen, as large volume has developed a solid base ahead of the Q3 earnings report slated to come after markets closed yesterday. The technicals are in place for a large upside, and the corporate guidance has already raised estimates once this year. All of this information begs the question: with a SanDisk earnings report in the offing, is this company a buy?
The company has a diverse product line, with multiple partnerships in the development and promotion of a series of microchips and flash drives, and now wireless flash devices, and has seen strong demand for the solid state drives it has recently brought to market. Furthermore, management seems to be making other quality decisions with the announcement of a $1 billion accelerated share repurchase plan for the current quarter, and an additional $2.5 billion in share buybacks over time, as well as announcing the offering of a $0.225 dividend, further increasing the value of SNDK to its shareholders.
The fundamental support for the company can be seen in its chart, most notably the number of times the price level has tested that $63 range and then fallen to below $60. Recently a reaction to the report of a fire at a plant owned by Chinese semiconductor manufacturer Hynix boosted the price mildly, and volume for the trades after the incident have been strong as the RSI hasn't dropped below 50 this month. This case for strong support above the $60 level suggests that a new floor has been established for this stock price, and any positive news will push the company's valuation higher.
A History of Underselling Success
The company has a history of beating earnings as well, having done so the past 3 quarters by an average of 30%. This says two things about SanDisk corporate guidance: primarily that it undersells the company's ability to perform, and secondarily, that management has a history of providing upside surprises in the earnings reports. This combination of features leads and investor to believe that there is a roughly 1 in 3 chance that SanDisk WON'T beat the estimates provided by the market for its Q3 performance. This also equates to a total revenue of somewhere between $1.7 and $1.83 billion, which will drive the corporate valuation to somewhere around the $72 price level. This assessment is in line with the price target for the firm from multiple analysts who value it somewhere in the 16.8 to 17 billion range, or $70 to $75 on a per share basis.
The answer is clearly a resounding yes, as there appears to be constant support in both the retail market and technical aspects of the stock price. This possibility of strong movement, potentially 20% to the upside in the near term, will come on the heels of corporate earnings and production increases, making SanDisk a buy, even in the wake of its recent highs.
Additional disclosure: I am not a CFA. The information and data presented in this article was obtained from company documents and/or sources believed to be reliable; however, it has not been independently verified, and thus the author cannot guarantee its accuracy. Please perform your own due diligence regarding investments, as I am not responsible for the investment decisions you make. Thanks for reading, and may the force be with you!