Expecting Upside in SanDisk Following Positive Calls

Sep. 4.07 | About: Western Digital (WDC)

A couple of firms are out on SandDisk (NASDAQ:SNDK) with positive comments:

- Piper Jaffray reiterates their Outperform rating on checks showing growing consumer interest in music-enabled and data-oriented phones that should drive continued growth in NAND flash demand. Firm notes they were particularly encouraged store channels increasingly emphasized phonessupporting 4GB memory cards such as LG's new Chocolate handset, the LG Muziq, and the Blackberry 8830, vs. the 2GB cap for most phones. They also noted strong sell-through of the Nokia 5300 as the third most popular phone at T-Mobile.

Further, checks noted solid sell-through of the iPhone, which they believe was the top-selling smartphone at AT&T and contributed to rising AT&T store traffic. Firm believes success of the iPhone will encourage other handset manufacturers to launch products with increased embedded NAND densities. While industry bit growth may have been pressured by price spikes associated with Samsung's recent production disruption during August, they believe the trajectory of growing secular demand for NAND flash and SanDisk's plans to lower production costs remains intact.

- Citigroup is very positive on SNDK saying the pullback in spot prices does not preclude an upward move in SNDK near or intermediate term. Viewing Street 4Q07E and 2008E EPS potentially 40% and 17% too low, the firm expects rising EPS to propel the shares higher in the months ahead. The early-December, 2005 to early January, 2006 period (stock up 50%+) serves to underpin their confidence.

Citi's conviction remains high in SNDK's upside potential. They think that as investors re-engage following a tumultuous August, the 2H07 and 2008 EPS upside they can see to Street estimates (royalty revenues, product gross margins; CIR ests increased on Aug 9) will become better appreciated, fueling a handsome move in the shares. Catalysts ahead include new product potential for industry (video, handset, computing), SNDK-specific product drivers for C2008 (iNAND and SSD's) and benign 1H08 seasonality before a tight 2H08.

Notablecalls: I would not be surprised to see buy interest in SNDK following this call. Citi's comments regarding EPS estimates being way too low may fire up the stock. It sure looks like it may have couple of bucks of upside in it.