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SanDisk Looks Promising, Hits New 52-Week High

Zacks Equity Research

SanDisk Corp. (SNDK) is well set on the growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals. Shares of this flash memory storage provider have been rising since the company released its first quarter fiscal 2014 results on Apr 16, 2014. Since the release, the stock price has moved up 25.6%.

Driven by strong client and enterprise solid state drive (SSD) sales, strength in retail businesses and favorable supply/demand metrics, the company posted solid first quarter 2014 results. Adjusted earnings of $1.32 per share soared 70.2% year over year and surpassed the Zacks Consensus Estimate of $1.27 per share.

Providing further impetus to the stock in the quarter was its sales performance. Sales escalated 12.7% year over year to $1.51 million, attributable to strong demand for both client and enterprise SSDs. Notably, SSD sales jumped 61% on a year-over-basis and comprised 28% of total revenue.

Moreover, this Zacks Rank #2 (Buy) stock has delivered a positive earnings surprise in the last four quarters with an average beat of 18.7%, making investors optimistic about continued strength in its performance. The company has a market cap of $20.6 billion and a long-term expected earnings growth rate of 10.0%.

These factors combined to push SanDisk to a new 52-week high of $93.17 yesterday, eventually closing at $92.72. The closing share price represents a robust one-year return of about 60.1% and year-to-date return of about 33.6%. Average volume of shares traded over the last three months stands at approximately 3,807K.

The recent price appreciation can be attributed to the growing demand for its SSD products. The company has also launched several new and innovative SSD products to cater to pent-up demand.

The newly-launched X300s SSD will cater to the needs of emerging IT enterprises, secure data and enhance the performance of data centers and client computing devices. With the new product launches, we expect SanDisk to strengthen its market position against its competitors such as Micron (MU) and Fusion-io (FIO).

Moreover, to further secure the newly-launched X300s SSD, SanDisk provided Wave Systems (WAVX) Embassy Security Center (ESC) encryption software for free. The software offers a user and password set-up, which provides an extra layer of security for enterprises using the SSD. We believe that the Wave Systems partnership will be good for SanDisk as it will enable the company to offer products with enhanced security at a lower cost.

As things stand now, we believe that the company remains well positioned to sustain its robust performance, helped by the acquisition of SMART Storage Systems and its offering in the Enterprise SSD segment.

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