Merrill Lynch initiates SanDisk Corp. (SNDK ) coverage with a buy rating and a $30 target.
Analyst Sidney Ho says his $30 target is at 21 times his $1.40 2005 earnings per share estimate, supported by mid-cycle valuation suggested by his long-term discounted-cash-flow model.
He says, at 16 times his 2005 earnings per share estimate, the stock is trading at a discount to the comparable group. Considering the company has over $7 per share in cash, he thinks it looks inexpensive. He sees $1.30 2004 earnings per share.
Ho notes his earnings per share estimates are higher than consensus estimates. He believes the Street is overly pessimistic regarding NAND flash memory supply-demand balance in 2005 and supply growth will remain constrained as new suppliers struggle to ramp up volume.