At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.
So perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.
Hard drives and solid-state drives and Asian tigers (oh, my!)
But first, a little background. When Western Digital
But for many other companies -- computer makers like Hewlett-Packard
Random musings about random access memory
Speaking of which, there's one other company whose fate I've been curious about of late: SanDisk
But what if there were no hard disk drives to be had? What if, oh, I don't know ... a freak series of floods washed over Thailand and suspended hard-disk production, drying up supply of this means of memory, or making it frightfully expensive to acquire parts when they're available? Might that be enough to make SSDs price-competitive, create enough demand to give the SSD industry real scale of production, cause prices to fall even more, and catalyze the wholesale conversion of memory from HDD to SSD?
I guess now, we'll never know.
What you don't know won't hurt you
No matter. You came here today to hear about upgrades, and upgrades you shall have -- an upgrade for SanDisk, as a matter of fact. At least one analyst thinks it's time to buy SanDisk today, Thailand or no Thailand.
Calling the company "the world's only pure-play NAND flash supplier," Nomura Securities announced yesterday that it's putting a "buy" rating on SanDisk -- and the reason has nothing to do with PCs. In fact, forget about PCs, which are so 20th century. In contrast, Nomura sees SanDisk as "well positioned to benefit from the fastest-growing segments in consumer electronics" -- smartphones and tablets, whose small size makes them suboptimal receptacles for bulky HDDs in the first place.
According to Nomura, SanDisk's SDD business benefits from "favorable supply/demand trends" as consumers gravitate to smaller, more mobile computing devices. Over time, "SanDisk should see better pricing and margins than the Street gives it credit for," too. As a result, while most Wall Street analysts believe that the company will earn about $5.03 next year, Nomura is moving to the head of the pack with projections of $5.80, roughly 15% above the consensus numbers.
Foolish takeaway
If Nomura is right about its numbers, then what happens in Thailand really shouldn't have much effect on SanDisk at all. Based on Nomura's projections, SanDisk is a company trading for 9 times forward earnings, but it's growing those earnings at about a 25% clip -- incredibly cheap, if it can maintain the pace. But even if it can't, Nomura points out, the stock's forward earnings valuation of 9 is still cheaper than the 13 forward P/E valuation more common in the semiconductor sector.
In short, it's not so much a question of whether SanDisk is a bargain. It is. The only real question is whether the bargain is "screaming" or just politely demanding our attention.
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