Goldman Sachs Adds SanDisk (SNDK) to CL-Buy List on Supply/Demand, Valuation

(Updated - March 11, 2015 8:48 AM EDT)

Goldman Sachs upgraded SanDisk (NASDAQ: SNDK) from Buy to Conviction Buy with a price target of $106.00 (from $100.00). Analyst Mark Delaney has increased confidence in 2015 NAND supply/demand in part due to iPhone 6 demand at other OEMs. He also noted attractive valuation given the stock's recent pull-pack.

Margins are seen expanding 400 bps by Q4 due to weaker yen, mix, and cost reductions. Additionally, there could be longer-term upside from SanDisk’s new hyper-scale all flash array product.

"We expect moderating ASP declines later in 2015, the May analyst day, and buyback (plan for more than $500 mn in 1Q15, or about 3% of shares) to be catalysts," said Delaney.

"Low 2H14 NAND SPE orders imply supply growth will be reasonable for at least the next two quarters (there is a two quarter lag between orders and output), and demand should pick up from a seasonally slow 1Q (aided by higher NAND per phone). Tight S/D, mix, the 15 nm shrink, and a weaker yen should all help margins," continued the analyst.

"We believe the Street is too negative on 2016 and the risk of a meaningful increase in 2016 supply from 3D. While this is a risk to monitor, we expect a reasonable ramp due to high capex requirements (3D requires 2X the tools as 2D), relatively high cost/bit for early 3D chips, and the fact that early 3D output is planned for SSDs (SSDs for OEMs need to be qualified, implying a delay from initial 3D output to volume ramp)," Delaney added. "Finally, SanDisk’s new all flash array gives it access to a sizeable growth market with high margins, and this could change the intermediate to longer-term investor debate on the stock."

For an analyst ratings summary and ratings history on SanDisk click here. For more ratings news on SanDisk click here.

Shares of SanDisk closed at $80.17 yesterday.

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