- Merrill Lynch notes SanDisk's (NASDAQ:SNDK) stock has been slipping since Q3 results mainly due to worries about oversupply in the NAND flash market. From a short-term trading standpoint, they think the stock could weaken further as the market continues to digest substantial new supply that is not being offset by any new killer applications. Firm's checks suggest that flash memory demand for the holiday season so far has been seasonally normal, but no more.
Despite their negative bias for the near term, firm's long-term view remains neutral. Certain suppliers, most notably Samsung, have begun to ease their capital spending on the NAND market, which should help alleviate the oversupply situation by the second half of 2007. Firm has trimmed their industry bit growth assumption as a result. Notes that their adjusted EPS estimate for 2007 of $2.50 remains below consensus estimate of $2.77.
From a valuation standpoint, the stock is trading at 18x prospective earnings, which does not look expensive based on the historical trading range (15x to 25x). However, given firm's belief that we are heading into further pricing weakness during the next few quarters, we think a more conservative multiple is warranted. The stock is trading between the normalized fair value ($53) and trough-cycle fair value ($35) based on long term returns model, suggesting
the stock is fairly valued.
Maintains Neutral.
Notablecalls: Expect to see some weakness in SNDK.
Despite their negative bias for the near term, firm's long-term view remains neutral. Certain suppliers, most notably Samsung, have begun to ease their capital spending on the NAND market, which should help alleviate the oversupply situation by the second half of 2007. Firm has trimmed their industry bit growth assumption as a result. Notes that their adjusted EPS estimate for 2007 of $2.50 remains below consensus estimate of $2.77.
From a valuation standpoint, the stock is trading at 18x prospective earnings, which does not look expensive based on the historical trading range (15x to 25x). However, given firm's belief that we are heading into further pricing weakness during the next few quarters, we think a more conservative multiple is warranted. The stock is trading between the normalized fair value ($53) and trough-cycle fair value ($35) based on long term returns model, suggesting
the stock is fairly valued.
Maintains Neutral.
Notablecalls: Expect to see some weakness in SNDK.
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