Nomura Upgrades SanDisk, Says Company Probably Met Quarter Guidance

In a report published Monday, Nomura analyst Romit Shah upgraded the rating on SanDisk Corporation SNDK from Reduce to Neutral, while maintaining the price target at $50. Although the stock has underperformed, year to date, the analyst believes that SanDisk's share are likely to benefit from favorable external factors, with limited downside. While the shares have meaningfully underperformed year to date, with the valuation being affected by execution and market share risks, the stock is expected to benefit going forward, from external factors such as robust NAND pricing and weakening of the yen. The analyst believes that industry fundamentals have been turning healthier and that the NAND market trends are strong, based on the intra-quarter data shared by some of SanDisk's peers. "Further, SNDK's announcement of its earnings date suggests the company likely met Q2 guidance; the first time this year SNDK would avoid a negative pre-announcement," analyst Shah stated. SanDisk forecasted a weakening yen, with the yen/USD rate at about ¥117 during Q2 through Q4. However, with the yen having risen since Q2, the analyst expects the company to be able to achieve its 2H gross margin guidance at the current rate. However, the analyst expressed concern regarding the persisting structural issues at SanDisk, while adding that there is greater visibility into the risks. Not only does there appear to be a weakening mix with the company's highest gross margin business declining, SanDisk also appears to be ceding market share to Samsung at customers like Apple, Inc. AAPL.