Shares of flash drive maker SanDisk (SNDK) are down $4.74, or 10%, at $45.31 after the company last night cut its Q1 outlook while providing little detail, citing weaker-than-expected demand and pricing for its wares.
The stock receives two downgrades this morning, that I can see, from RBC Capital’s Doug Freedman, who cut his rating from “Top Pick” to Outperform, and from Caris & Co.’s Craig Ellis, who cut the stock from Buy to “Above Average.”
Freedman writes that the cut is likely “principally related to: 1) ongoing inventory burn in majority of Smartphone market; and 2) softer pricing trends resulting in an oversupplied retail market (USB, SD cards).”
He sees some weakness in the shares until Q3 arrives, writing, “In our opinion, Q2 is also likely soft as material demand inflection resulting from Ultrabooks and Smartphones. As such, we believe Q3 will be the play on material catalysts.”
Freedman cut his estimate for this year to $5.4 billion in revenue and $3.03 per share in net profit from a prior $6.5 billion and $4.82.
Ellis writes that “While we and others had recently noted retail pricing risk, we saw it more a 2Q12 than 1Q12 risk given the nature of the OEM pricing model, but we were wrong on both magnitude and timing.”
He has less confidence now and there’s “less compelling upside” as “catalysts” around solid-state drives will contend with erosion in the company’s OEM and retail businesses, he writes.
Ellis cut his 2012 estimate to $5.62 billion in revenue and $3.40 per share from $6.64 billion and $4.23 per share.
But both bull and bear seem not entirely surprised by the cut, though they will quibble over the significance of it. Price targets and estimates are going down across the board, however:
Hans Mosesmann, Raymond James: Reiterates an Outperform rating and cuts his price target three dollars to $52. The weakness was a “near-term supply/demand imbalance,” he writes. ” Note that Micron alluded to a one-quarter SSD air pocket given strong pull-in ahead of a number of product ramps (Ultrabooks). This is likely the same for SanDisk, and is transient (not structural). We believe supply/demand dynamics should recover in the back half of the year.” Mosesmman cut his estimate for this year to $5.8 billion in revenue and $3.37 per share from a prior $6.32 billion and $4.04 per share.
Sidney Ho, Nomura Equity Research: Reiterates a Buy rating, while cutting his price target to $60 from $65. ” While uncertainties remain for Q2, we continue to expect a snapback in revenue and margins in 2H12, driven by seasonal build of smartphones and solid state drives. We think now is a good time to be adding to positions.” Ho cut his 2012 estimate to $5.85 billion in revenue and $3.70 per share in profit, from a prior $6.59 billion and $5 per share.
Daniel Berenbaum, MKM Partners: Reiterates a Neutral rating, and a $41 “fair value” estimate. “The news was generally in line with our cautious commentary from Friday, but the magnitude was even worse than we expected. Bulls will likely find it more difficult to overlook near- term weakness in favor of thematic drivers � our view is that the majority of bit demand is for commodity products, our bottom-up model suggests over-supply through 2012, and our due diligence suggests significant pricing pressure.” Berenbaum cut his estimate or this year to $5.9 billion and $3.83 per share from a prior $6.2 billion and $4.34 per share.
Sundeep Bajikar, Jefferies & Co.: Reiterates a Hold rating, and a $56 price target. “We could become more constructive on SNDK with higher visibility into share gains in Enterprise SSD, or more cautious with lower profitability in Consumer,” he writes. “We continue to believe upside to NAND demand over the next 6-to-12 months is most likely to be driven by growth in Enterprise SSD primarily for high-performance caching applications over the PCIe interface. We think SSD penetration in Ultrabook could disappoint, due to a combination of slower than expected Ultrabook ramps, and faster declines in HDD prices relative to NAND, making NAND less attractive for bulk storage.” Bajikar cut his estimate for this year to $6.33 billion and $3.81 per share from a prior $6.48 billion and $4.15.
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