SanDisk: Pacific Crest Downgrades To Underperform; Shrs Fall

SanDisk (SNDK) shares are trading lower this morning after Pacific Crest analyst Kavin Vassily cut his rating on the flash memory chip company’s shares to Underperform from Sector Perform.

“The NAND market has moved from a growth business to a cyclical business, perpetually in search of an application or market,” he writes. “SanDisk apparently believes this to be true, because instead of extending their brand, the company has chosen to sell wafers and finished product to the Asian module houses that are largely considered its competitors.” He says Samsung now views SanDisk as its most significant rival in the market, rather than Micron, Hynix or Toshiba.

“If the model has morphed, than SNDK should be valued as such,” he writes. “We suggest that multiples given to the NAND semi and Asian module companies” – which are notably lower – are now appropriate for SNDK.

Vassily contends that at 9x “whispers” of profits of $4 a share, the stock is fully valued. But at $2.50 a share in profits – he sees $2.41 this year and $2.25 next year – he contends that there is downside to $25. “The risk/reward tilts heavily toward risk,” he writes. “It’s time to exit the shares.”

SNDK today is down 79 cents, or 2.1%, to $36.95.