In Defense of SanDisk

Citigroup is out with a pretty brilliant defense of Sandisk (SNDK), noting the shares fell 7.5% after a Monday morning conference presentation by CEO Eli Harari, a drag on the SOXX. Citi's review of broader NAND data suggests a buying opportunity has emerged.

The typically upbeat Harari was noticeably restrained. That said, he indicated Europe remains strong (44% of sales), and left OEM sales un-addressed (all geos; 42% of sales).

The Firm notes that understandably, SNDK braced for weak April US retail sell through data (cards+drives+MP3 players) in the afternoon's NPD release. However, it found SNDK bit growth was just 300 bps below seasonal averages (helped by easy comps) while ASPs were actually 300 bps better than seasonal.

Separately, Citi confirmed with SNDK that its Europe and Asia market share trends are firm and the OEM biz solid. Firm concludes SNDK is likely working to keep Street expectations in check, in particular as: 1) much of the Moms/Proms/Dads/Grads selling season lies ahead, and 2) some competitors have recently raised 2Q GM estimates (2Q08 to be the trough). Overall, they are comfortable with their 2Q08, 3Q08 and 2008 estimates.

While end demand risks persists, the body of evidence Citi sees continues to point toward steadily firming fundamentals into and through 3Q08.

The Firm thinks positive EPS revision catalysts remain in play in July through October and on a target of $35, but with upside to $40 if multiples inflate seasonally.

Reiterates Buy.

Notablecalls: I think Citi is doing the right thing here defending SNDK. What we saw yesterday was just profit taking following the recent run (can't blame the bold ones who bought the stock in the low 20s taking some of it off the table). Citi has done a good job covering SNDK recently and I think the stock is a bounce candidate here.

For the record, Lazard and JPM are somewhat cautious on SNDK this AM (FYI only).

The stock's a buy below $30.

Comments

[iron308]

Considering it is now 13 and change, how far below 30 should we wait before buying?