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JP Morgan Downgrade Could Mark SanDisk Bottom

Obliterated, beaten down and beleaguered would be the most appropriate words used to describe shares of SanDisk Corp. (SNDK) that have fallen 55.5% year to date and are down even more percentage-wise from a 52-week high of $59.75. But cheap can also be used as an adjective for a stock by which most measures suggest an abnormally low valuation. SanDisk is trading below its book value of $22.12 and 12 times next fiscal year’s earnings of $2.00 per share. And that is why JP Morgan analyst Paul Coster’s recent downgrade of the flash supplier, which sent SanDisk shares below the Jackson line (that’s $20 a share) for the first time since 2004, could mark a short term bottom. According to the Dow Jones Newswire, in cutting the rating on SanDisk from “overweight” to “neutral,” Coster writes that profit warnings from flash players Intel, Toshiba and Sony-Ericsson is troubling and that despite the fact that “the SanDisk multiple is probably bottoming out, we see downside to earnings per share, and SanDisk might not out-perform in a beta-led rally owing to overcapacity concerns.” Ignoring that JP Morgan is the same firm that upgraded SanDisk from “neutral” to “overweight” on Jul. 18 of last year (SanDisk traded for $57.15 a share at the time) which would very much make this a good contrarian call, that statement is probably true, because in the end, a reversal of the flash memory price slide would have to occur for there to be any meaningful price appreciation. However, an ultra-low valuation should keep the decline in check because over the past 60 days analyst estimates have largely discounted a continued fall in flash prices which has been at the heart of SanDisk’s stunning fall from grace; the profit estimate for 2008 now stands at $1.76 a share versus a previous estimate of $2.32 and for 2009, $2.00 compared to $2.61 analysts had predicted two months ago. Way oversold and highly shorted, SanDisk is a good bounce candidate.

Related Articles

• May 5, 2008 -- SanDisk Shares Forward-Looking, Shorts Still Skeptical
• April 18, 2008 -- SanDisk CEO Affirms Market Optimism of NAND Turnaround
• April 4, 2008 -- SanDisk Rally All About Potential NAND Pricing Bottom

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