Friday, January 12, 2007

Calls of Note Part 2

- Citigroup is cautious on Sandisk (NASDAQ:SNDK) shares entering 2007. Fieldwork suggests known near- term pricing risks could prove greater than Street expectations, compounded near term by seasonality, waning price elasticity of demand, and any upside to NAND supply. On company-specifics, while they expect solid 4Q06 EPS given handset card strength, a cautious 1Q07 outlook should be expected and they see more downside than upside risk to 2007 Street EPS revisions. Psychologically, ongoing spot and contract price declines, compounded by MU's February 9th analyst day which seems likely to emphasize 2007 supply growth and a Lexar market share gains are headwinds. Further out, SanDisk's 2/26 strategic and financial outlook focused analyst day could put a floor under the shares in what is otherwise a seasonally-unfriendly period until May. In summary, while the shares are not expensive at 18.6x 2007E EPS, volatility could be significant near term. Catalysts could emerge closer to the February 26th Analyst day, and the firm might reconsider their Hold rating at share prices below $40.

Increases 4Q06 EPS to $0.71 from $0.69 on handset cards+unchgd pricing. However, for the 2nd time since early-Dec, the firm cuts their 07e EPS, to $2.55 from $2.71, this time on prd pricing (prop checks) + royalty. Tgt goes to $52 from $54.

Notablecalls: SNDK got hit yesterday on NAND concerns. That may continue in the s-t.

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