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April 27, 2012 at 18:46 PM EDT
SanDisk: Jefferies Ups to Buy on Low Bar for EPS
Jefferies & Co.’s Sundeep Bajikar today raised his rating on shares of SanDisk (SNDK) to Buy from Hold, and raised his price target to $47 from $45, writign that after underperforming the broader market this year, and seeing estimates slashed, the company is set to beat expectations with higher gross margin. SanDisk shares are down [...]

Jefferies & Co.’s Sundeep Bajikar today raised his rating on shares of SanDisk (SNDK) to Buy from Hold, and raised his price target to $47 from $45, writign that after underperforming the broader market this year, and seeing estimates slashed, the company is set to beat expectations with higher gross margin.

SanDisk shares are down 24% this year compared to an 18% rise in the Nasdaq Composite Index.  The average revenue estimate for this year has dropped from $6.4 billion in March to $5.1 billion today, on average, according to FactSet. Note that the company’s own forecast is currently way above consensus, with a range of $6.2 to $6.6 billion.

Gross margin this year could rise to 36%, better than the Street consensus expectation for 31%, Bajikar thinks, as the company gets better manufacturing yield and sees rising demand:

SanDisk has pushed the next phase of its Fab 5 capacity expansion out from CY12, lowering risk of excess industry NAND supply. We expect SanDisk’s mobile mix shift towards Apple in 2H, and PCIe-SSD ramp into Enterprise high-performance caching applications starting in June, to drive step function increases in demand. Better Cost Reduction Drives Higher Gross Margins. SanDisk raised its captive bit supply growth outlook to ~77% (from <77%) despite putting off its Fab 5 expansion until CY13, we believe because SanDisk is seeing better than expected 19nm yields, which could drive CY12 cost reductions closer to the high end of guidance (25-35%). Additionally, SanDisk expects its use of higher-cost non-Captive supply to decrease in CY12.

Bajikar is estimating $5.13 billion in revenue this year and $2.72 per share in non-GAAP EPS, which is above the average $2.14 per share estimate.

Shares of SanDisk today rose 18 cents, or half a percent, to $37.58.

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