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SanDisk Corporation (SNDK): Goldman Sachs Downgrades to Neutral from Buy

By Howard Kim

Goldman Sachs analyst Mark Delaney downgraded SanDisk Corporation (NASDAQ:SNDK) on September 16 from Buy to Neutral and slashed his price target to $55 (from his previous target of $73). Delaney expressed several concerns about SanDisk’s stock, including a weaker NAND outlook, an expected increase in oversupply, and the fact that only emerging markets are expected to contribute to smartphone growth.

Delaney added that the stock has witnessed significant downward pressure due to certain issues, including a loss of market share in SSDs; issues pertaining to manufacturing and mix; and very few smartphones having add-on card slots (one of the largest markets for SanDisk).

Other factors noted by Delaney in his report include:

  1. Fall in NAND ASPs due to oversupply and weaker sales of smartphones. Based on Delaney’s projections, there will be a 3% oversupply in 2015 and a 2% oversupply in 2016. Also, in 2016, over 90% growth in the smartphone market could come from emerging markets, where the macro demand outlook is uncertain.
  2. Based on capital allocation plans announced by various NAND and drive companies, there’s less likelihood of any M&A activity in the near future.
  3. SanDisk will face several execution challenges in 2016, including the renegotiation of its IP agreement with Samsung.

Delaney said in his report, “While SanDisk has been executing better recently (with upside on the 2Q report), 2016E Street EPS has been revised down 41% over the last year.”

For 2015, the EPS estimate for the stock is down to $2.60 from $2.65; for 2016, the estimate is down to $3.75 from $4.20. For 2017, the EPS estimate is down to $5.00 from $5.35.

On average, Delaney has a success rate of 60% recommending stocks and a +10% average return per recommendation when measured over a one-year horizon and no benchmark. Since 2012, Delaney’s average return per recommendation has been 10%.

Out of 20 analysts polled by TipRanks who have rated SanDisk within the past three months, 10 are bullish on the stock, 8 are neutral, and 2 are bearish. The average 12-month price target on SanDisk is $63.61, marking a 16.2% potential upside from current levels.