Analyst Actions: Whitney on U.S. banks, Netflix, SanDisk

Analyst Actions: Whitney on U.S. banks, Netflix, SanDisk


Oppenheimer analyst Meredith Whitney believes the credit crisis will extend well into 2009, perhaps beyond. She sees three years of multi-billion dollar revenue reversals.

Whitney notes that, to date, for large-cap U.S. banks under her coverage, over $70 billion in write-downs have been taken related to real estate securities held; over $25 billion of reserve builds have been taken related to on balance sheet loans. She estimates that by the end of 2009, over $170 billion of reserve builds will flow through bank earnings on top of "business as usual" loan loss provisions.

She says it's revenue reversal from years' worth of inherently flawed underwriting. She notes her revised 2008 and 2009 estimates are now 72% and 37% below consensus, respectively.

Whitney increased her 2008 loss forecast for Citigroup (C), less than seven months after correctly predicting that the largest U.S. bank would cut its dividend and go on a capital-raising spree. She also cut her 2008 profit forecasts for Bank of America (BAC), JPMorgan Chase & Co (JPM) and Wachovia (WB).


Lehman Brothers analyst Douglas Anmuth says he believes Netflix's (NFLX) strong DVD-by-mail trends continue in the second quarter related to SAC (subscriber acquisition costs), subscriber additions, and churn; digital investment masks the underlying health of the core business.

Anmuth notes even with increased emphasis on digital, NFLX continues to have one of highest earnings growth profiles in his coverage universe, with 2007-2010 EPS CAGR approaching 30%. He believes NFLX's $150 million outstanding share repurchase authorization-- representing 7.5% of the company at current levels-- provides downside support.

He raises $1.24 2008 EPS estimate to $1.26 and $1.63 2009 to $1.66. He has 37 price target.


Yesterday, SanDisk (SNDK) CEO Harari noted April softness in the U.S., a challenging macro backdrop, disappointing product initiatives, and excess competitor inventory affecting retail pricing. Citigroup analyst Craig Ellis says, however, that the company's April bit growth just 300 basis points is below seasonal; ASPs were actually higher.

Ellis says he confirmed with SanDisk that Europe and Asia market-share trends are firm and OEM business is solid. He sees steadily firming fundamentals into and through the third quarter. He says he is comfortable with his 2008 estimates; he sees $1.40 EPS. He thinks positive EPS revision catalysts remain in play for July-October.

He notes that yesterday's give-back leaves the share price down 9% year-to-date and sees a buying opportunity. He keeps a 35 price target.

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