Sandisk (SNDK +6.45%) stock is heading into its fourth straight day of gains Thursday -- up 6.2% through 10:50 a.m. ET -- and has Evercore ISI to thank for it.
In a note this morning, Evercore analyst Amit Daryanani reiterated his outperform rating and $2.800 price target on Sandisk stock, laying out multiple predictions for the company's future as Sandisk prepares to give an update for "Investor Day."
Image source: Getty Images.
Why Evercore loves Sandisk
Let's start with the predictions. Citing NAND memory prices that have "more than tripled" over the past year, Daryanani argues that Sandisk today can maintain 80% gross profit margins through the top of the current semiconductor cycle, then maintain perhaps 65% to 70% margins after the peak -- more than twice the historical norm.
During the first part of this cycle, Daryanani sees Sandisk generating as much as $35 billion in free cash flow annually, easily enough to buy back 10% of shares outstanding per year beginning in 2027.
NASDAQ: SNDK
Key Data Points
What's next for Sandisk
Will Sandisk use its cash windfall to buy back stock? It's certainly possible -- and investors today seem to be betting it will happen. In fact, with a $180 billion market capitalization, $35 billion in FCF would permit Sandisk to buy back nearly 20% of its stock annually, reducing its share count and concentrating its profits among fewer shares outstanding.
After three years of negative free cash flow that made share buybacks essentially impossible for Sandisk, this would be a major change in the company's fortunes. What's more, with analysts polled by S&P Global Market Intelligence forecasting Sandisk will generate more than $100 billion in free cash flow through 2029, it's conceivable Sandisk could buy back more than half its stock over the next three years.
No wonder Sandisk investors are excited.
