Tuesday, July 25, 2006

Color on quarter: SNDK, CNET

- While the results from Sandisk (NASDAQ:SNDK) surprised the Street analyst commentary leaves me with only one question: Do we have to short it already in the pre mkt or can we wait a couple of days?

* Deutsche Bank notes SNDK posted better than expected (DB, Street, & market) 2Q results, but guided to weaker than expected (Street) 3Q. As they expected, it brought down full year royalty guidance and ASP guidance (though, still above industry peers - reason for some caution). Unless street believes guidance is conservative, 2H06 estimates are likely to come down. Firm continues to believe that SNDK is fairly valued with plenty risks (litigation, low price-visibility, structural NAND deterioration with new entrants, and consumer exposure), and retains Hold rating and $40 P/T.

* JP Morgan notes a strong quarter has been immediately priced into the stock, which traded up 19% on high volume post yesterday's $40.20 close to $48.20 (approximately 28% for the day vrs the SandP up 1.7%). Firm is incrementally positive because SNDK appears to be winning share and improving its business model, even during cyclical and seasonal weakness. SNDK looks set for a typically strong year-end, providing CE spending holds up. The margin outlook is buoyant through year-end, but could turn down slightly in 1H07 when Fab 3 yields peak and SNDK turns back to Samsung for non-captive supply, in firm's view. Capex associated with Fab 4 becomes a consideration in late 2007, which may weigh on the multiple somewhat.

Maintains Neutral Rating. If SNDK opens at the $48.20 indicated last night, SNDK will be trading at 17.1 times revised FY07 PF EPS of $2.82, a 13% discount to the mean of firm's coverage universe and a PEG of 1.2x on a 14% '05-'07 PF EPS CAGR. The multiple looks reasonable compared with SNDK's historical trading range (12.5-34.7x 2-year NTM P/E).

* Goldman says the stock had been trading significantly below our $46 price target and was likely over shorted into the call so the strong CY2Q2006 results should drive the stock closer to our price target. However, soft guidance will likely prevent the stock from trading too far above firm's price target as the guidance dampens hopes for a robust CY2H2006 in NAND as some had hoped. Theyprefer Intel (Buy), Marvell (Buy), and FormFactor (Buy) for when the group bottoms, likely later this summer, as they would wait on SNDK until we get better clarity on if/when additional licensees may be added, given that the royalty stream is the main driver of valuation.

- Stifel notes that contrary to investor concern, CNET Networks (NASDAQ:CNET) beat revenue expectations after the close last night. Other than cash position, the company did not provide any further financial details due to the ongoing options investigation. 3Q revenue guidance was above expectations, full-year outlook was reiterated and no longer looks as back-end weighted as it had previously.

Traffic growth continued to slow during the quarter with page views down 5% overall, but up 12% excluding Webshots, which commands disproporationately lower revenue/page.
Firm sees a greater potential of a company sale due to the options scandal and continue to see a potential takeover value of $13+. In their view, CNET shares offer old-media valuation with new-media growth - reiterates Buy rating and $11.50 price target.

Notablecalls: Stifel is about the only firm out positive on CNET this morning. Couple of firms, including Piper and RBC are lowering their tgts to $9. Still, I think CENT is one to watch as it's one of the last remaining pure-play internet content providers. They have 30+ mln users which is a lot.

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