Why Analysts May Upgrade SanDisk Handily After Earnings and Guidance

SanDisk Corp. (NASDAQ: SNDK) may have just saved itself after what would in many other cases be a very mediocre earnings report. While earnings has already been covered, the company offered up in-line guidance that may finally signal the worst of its news is behind it. If the poor performance in 2015 and in 2014 from its peak is any indicator, investors may expect that many analysts from Wall Street are going to come out with better targets or at least be less negative in their calls.

SanDisk gave some basic guidance in the conference call. The leader of independent flash memory said that it now expects that revenue in its third quarter will be roughly $1.35 billion to $1.45 billion, which is a mid-point of $1.40 billion versus consensus estimates from Thomson Reuters of $1.41 billion.

Annual guidance for 2015 was put in a range of $5.40 billion to $5.70 billion, with the mid-point of $5.55 billion comparing to consensus estimates of $5.53 billion in revenue.

So, what matters here in addition to the guidance is that SanDisk reported second quarter financial results of $0.66 in adjusted earnings per share and net earnings of $0.38 per share on $1.24 billion in revenue. Those figures were against consensus estimates of $0.33 in EPS on $1.20 billion in revenue. The same period in the previous year had $1.41 in EPS on $1.63 billion.

As was cited in the earnings preview, SanDisk had been running as the master of disaster on earnings for some time. If the company could find a way to disappoint on earnings and/or on guidance, then it managed to do so.

As far as why investors and traders might finally expect some upside here from analyst calls on Thursday and/or Friday, let’s just say that the bar was set very low and even mediocre here would have been viewed favorably. SanDisk’s later indications in the after-hours was even higher than the early after-hours indications —  closed down 2.3% at $54.20 on the day and the its shares were up 7.3% at $58.19 when we only had the earnings data without guidance; but the 5:05 p.m. Eastern Time indications were then seen up 13.3% at $61.40 with more than 1.35 million shares having traded just since the 4:00 p.m. Eastern Time closing bell.

SanDisk’s 52-week trading range of $53.18 to $106.64 with a pre-earnings close of $54.18 should show just what a disaster SanDisk’s stock had been. The positive investor reaction to it beating earnings on weaker numbers from a year ago and keeping guidance close to the estimates and driving shares even farther up should be of some comfort.

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SanDisk also kept up with its $0.30 per share dividend in the earnings report. It also ended the quarter with $1.76 billion in cash and equivalents, and its CEO quote was as follows:

During the second quarter, we strengthened our portfolio with several new product launches in both the retail and commercial channels. We are making steady progress on all operational fronts, and remain focused on enhancing our financial performance.

It is always dangerous trying to predict what other predictions will be, but this earnings report and guidance should alleviate at some of the worst fears out there. Here were some of the prior recent analyst calls and trading trends:

  • In recent days, Nomura raised SanDisk to Neutral from Reduce with a $50 price target (versus roughly $55 at the time).
  • SanDisk was reiterated as Overweight with a $75 target price (down from $80) at Pacific Crest, just a day ahead of Wednesday’s earnings report.
  • SanDisk’s end of June short interest was higher than mid-June, rising to 15.06 million shares versus the previous reading of 14.87 million shares short.
  • In mid-June, Morgan Stanley downgraded it to Equal Weight from Overweight with a $75 price target (versus $66.10 prior close).

With a consensus price target of $68.60, it would seem as though many analysts and investors will think the worst is behind it. The caveat is of course that you never know which reaction certain people react to until they formally react.

Now SanDisk just has to execute on all those new products that have been announced to continue pleasing shareholders ahead. That is, of course, the hard part.

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