SanDisk (SNDK) will report its third quarter earnings this Thursday, October 20. It is not surprising that expectations have been scaled back, as they have been for many companies; the economy has battered it also. SNDK has had a 15% drop in earnings in the last year, with lower profits the last two quarters, dropping 3.7% and 4.5%, respectively. Consensus estimates have SNDK coming in around $1.01.
It is not just SNDK, but the semiconductor industry as a whole that has been hit hard. In a Paragon Report, the Semiconductor Industry Association said that the three-month moving average of sales to the Americas fell 1.4 percent in the April-to-June period; sales to Europe fell 2.4 percent, and sales to Asia Pacific fell 0.4 percent. We have weakening consumer confidence, and consumers are not buying the PCs and smart phones the chips are manufactured for.
With all that gloom behind us, where does that leave the investor who is interested in investing in the semiconductor sector, especially in SNDK?
Considering what we just wrote about the industry, Doug Freeman of RBC Capital believes it will start to outperform the market. Ray Tierman at Tech Tader Daily writes about the RBC report, estimating the semiconductor industry may be already under-shipping based upon consumption levels, and the industry as a whole may grow twice that of the global BDP next year. Tierman quotes Freeman:
We expect semiconductors to outperform the broader markets by 1.5x to 2x the S&P 500 return over the next 12 months. Historically, we believe the first wave of estimate cuts, as currently ongoing, has defined a market bottom. The second round of estimate cuts can cause a re-test of the first-cut low, but often holds, building a base for a sustainable rally.
SNDK is RBC Capital's top pick in the industry.
If the industry is expected to blossom next year, SNDK is worth an investor's look. Recently SanDisk announced a new retail product based on a survey it conducted. Harris Interactive conducted the survey this year among 2,294 U.S. adults. The survey found that 79 percent of U.S. adults who have digital photos plan on passing them down to future generations. Photos are so precious that 64 percent of U.S. adults would not consider destroying their family photo collection for any amount of money, not even for $1 million.
With this in mind, it announced a new retail product: what it calls a "preservation solutions category" with products that can adapt to and address all market segments, including mobile phones, cameras, notebooks, and tablets. A press release from SanDisk claims its "flash storage solutions help consumers capture more photos, load their mobile apps faster, share exciting moments with friends and preserve their memories for generations to come.”
Is SanDisk a worthy investment? With the semiconductor sector looking to lead the S&P 500 into bullish territory through 2012, SNDK is a good stock to put on one's watch list for the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
