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Can SanDisk (SNDK) Keep the Earnings Streak Alive?

Zacks Equity Research

SanDisk Corp. (SNDK) is set to report second-quarter 2014 results on Jul 16. Last quarter, the company posted a positive earnings surprise of 12.82% and has an average earnings surprise of 18.75% over the last four quarters. Let us see how things are shaping up for this announcement.

Factors This Past Quarter

SanDisk reported strong first-quarter results on the back of robust client and enterprise solid state drive (SSD) sales, strength in retail businesses and favorable supply/demand metrics.

SanDisk’s margins are expected to benefit from the higher mix of high-margin embedded and client and enterprise class SSD solutions and products. Moreover, SanDisk is witnessing increased demand for its SSD products which will boost top line. Additionally, a declining cost per gigabyte and increase in the average selling price per gigabyte bodes well for the company.

Moreover, SanDisk has made a strategic acquisition of Fusion-io, a provider of flash-based PCIe hardware and software solutions. This will further strengthen SanDisk’s position in the storage market as PCIe-based SSDs are used by enterprises dealing in online transaction processing and data warehousing. We believe that the synergies from the acquisition will help SanDisk to emerge as a major player in the fast growing flash memory market, thus lending greater stability to its revenue stream

However, tepid PC sales, competition from Micron Technology and Western Digital, and currency fluctuations remain the headwinds.

Earnings Whispers?

Our proven model does not conclusively show that SanDisk will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.28. Hence, the difference is 0.00%.

Zacks Rank: SanDisk has a Zacks Rank #2 (Buy). Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are a few other companies you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Intel Corporation (INTC), with an Earnings ESP of +1.92% and a Zacks Rank #1 (Strong Buy).

Garmin Ltd. (GRMN), with an Earnings ESP of +1.33% and a Zacks Rank #1.

Visa Inc. (V), with an Earnings ESP of +1.91% and a Zacks Rank #2.

Read the Full Research Report on GRMN
Read the Full Research Report on V
Read the Full Research Report on SNDK
Read the Full Research Report on INTC

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