SanDisk Ready to Flash Strong Earnings

January 27, 2007

SanDisk will report its quarterly earnings on Tuesday, and early indications point to a report that will beat analyst expectations and propel the struggling stock higher.

SanDisk (SNDK), a producer of various flash memory products for consumers and enterprises is set to report its fourth quarter earnings on Tuesday. Last quarter the company beat analyst estimates by a nickel but disappointed investors with news of sharply lower selling prices and a tepid outlook. This quarter may not have been bad as analysts are expecting, and several sources are predicting a positive earnings surprise for this quarter.

EarningsWhisper.com is reporting that there is a whispering among analysts for earnings of two cents better than the 65 cents a share consensus estimate (after 10 cents of stock-option expenses).

SanDisk’s fourth quarter results will be aided by strong holiday demand from consumers for flash memory used in devices like digital cameras, cell phones, USB memory drives, and its Sansa line of MP3 players. The Sansa has the advantage of being priced competitively to Apple’s iPod offerings and the Microsoft Zune MP3 player. Although the recent additions of lower cost iPod Nano and Shuffle players will control a large portion of the market, the Sansa should still positively contribute to SanDisk earnings. The company has a solid positioning in the hottest and fastest growing segments of electronics world.

After losing over 20% of its value the day after its last earnings release, expectations are much lower among both analysts and investors. Any positive news should cause investors to get back into the stock, and force the 20 million shares short (ShortSqueeze.com) to be covered. Last quarter, the company reported that average selling prices fell 60% per megabyte, causing panic among analysts to downgrade the stock and raise questions of whether this type of corrosion would continue.

Key measures that analysts will be looking at will include the company’s financial outlook. Currently the consensus estimate for earnings in 2007 is $2.27 a share, and $0.52 for the next quarter. Also, details about new product developments like a 16 gigabyte flash memory chip and 32 gigabyte solid state hard drive may be released. The 16 gigabyte flash chip could find its way into the Apple iPhone or the iPod Nano, both of whom have an 8 gigabyte maximum capacity currently. The solid state hard drive is a promising alternative to mechanical drives that have a tendency to fail after limited use.

Another maker of electronic memory, Seagate Technology (STX) reported earnings results that exceeded analyst estimates and sent its stock over 8% higher the following day. Although Seagate focuses on different segments of the market, the good results could bode well for SanDisk.

SanDisk’s board of directors authorized a $300 million stock repurchase program for the next two years that should prop the stock price up and increase earnings per share figures in the future.

SanDisk stock has been beaten down after the baffling report last quarter, and has a good shot of turning around soon. The company will have trouble matching its almost 50% annual growth rate over the past 5 years, but the 19% a year growth for the next 5 years that is being anticipated makes it a good value at it’s current P/E ratio of 23.

SanDisk is a leader in the flash memory ecosystem, and innovations like its new solid state hard drives and higher capacity memory offerings show that the company is committed to developing cutting-edge technology to enrich consumers and reward investors.

At the time of publication, Dhinesh Ganapathiappan did not own or control shares of any companies mentioned in this article.