Tuesday, January 23, 2007

Calls of Note Part 2

Bear Stearns is positive on Sandisk (NASDAQ:SNDK) saying that although they expect demand/pricing for flash-based devices to be weak in the early part of 2007, at current levels they believe SanDisk stock is already pricing in the near-term pessimistic outlook. Specifically, the firm believes the stock is pricing in an ASP decline in the 30% range for 1Q07, and they believe guidance would have to be lower than this level for the stock to react unfavorably in the near-term. They believe the stock's current valuation, at 18x their 2007 non-GAAP EPS (including dilution from the M-Systems acquisition) presents a great opportunity for investors to accumulate the shares.

Firm remains comfortable with their 4Q06 EPS estimate of $0.80 (this excludes impact from M-Systems). They are estimating bit growth of 73% QoQ for the quarter, above guidance of 50-60% QoQ, and ASP decline of 23% QoQ, slightly below the low end of the guidance range of 15-20% QoQ. Firm believes SanDisk benefited from a strong increase in densities driven by the price cuts in 3Q and 4Q, as well as strong microSD demand in the quarter.

Maintains Outperform but lowers tgt to $65 from $72.

Notablecalls: Not holding my breath for a bounce.

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