Goldman Removes SanDisk From 'Conviction Buy' List

• SanDisk Corporation SNDK shares have plunged 44 percent year-to-date, declining steeply from $87.07 reached on March 20.
• Goldman Sachs’ Mark Delaney downgraded the company from Buy to Neutral, while reducing the price target from $73 to $55.
• Delaney expressed concern over a weaker NAND outlook, with oversupply expected to increase and smartphone growth likely to be driven mostly by emerging markets.

Analyst Mark Delaney said, “We remove SanDisk from the Americas Buy List and now have a Neutral rating.” SanDisk’s shares have lost 40 percent since the upgrade to a Buy rating on November 13, 2014, significantly underperforming the S&P 500, which declined 3 percent over the same time period.

Delaney believes that SanDisk’s shares have been under pressure mostly on account of “company specific issues including share loss in SSDs, manufacturing and mix issues, and a smaller percent of smartphones having add-on card slots (a market where SanDisk has high market share).”

In the report Goldman Sachs noted its current view of SanDisk to include:

1. Decline in NAND ASPs due to rising supply and weaker smartphone sales. Delaney expects 3 percent oversupply in 2015 and 2 percent in 2016. Moreover, 90 percent of smartphone growth in 2016 may be from emerging markets, where “content/box may be lower and macro demand is uncertain.”
2. M&A being less likely, since many NAND and drive companies have announced other capital allocation plans.
3. Execution challenges for SanDisk in 2016, including renegotiating its IP agreement with Samsung.

“While SanDisk has been executing better recently (with upside on the 2Q report), 2016E Street EPS has been revised down 41% over the last year,” Delaney wrote.

The EPS estimates for 2015, 2016 and 2017 have been reduced from $2.65 to $2.60, from $4.20 to $3.75 and from $5.35 to $5.00, respectively.