SanDisk: Zacks’ Bear of the Day Play

SanDisk (SNDKAnalyst Report) has a solid history of beating the Zacks Consensus Estimate, so why is this stock now a Zacks Rank #5 (Strong Sell) and the Bear of the Day? Let’s take a look.

Company Description

SanDisk Corp makes data storage solutions in the United States and internationally. The company offers removable cards, which are used in various applications and consumer devices, including digital cameras, camcorders, smartphones and tablets. SanDisk Corp was founded in 1988 and is headquartered in Milpitas, California.

Solid History

The Bear of the Day is a look at why a stock has moved to a Zacks Rank #5 (Strong Sell) and that can happen for a number of reasons. SNDK has a solid history of beating the number, but the most recent report on 1/21 was an earnings meet. That is the first time that SNDK has not topped the Zacks Consensus Estimate since the June 2012 quarter was reported (a miss of two cents).

But a meet isn’t that bad, right? Well they are not bad as long as you don’t see lower guidance and that is just what happened with SNDK.

Earnings Estimates

Estimate revisions drive the Zacks Rank, and the estimate revisions for SDNK have been pretty negative over the last couple of months. The 2015 Zacks Consensus Estimate was $6.04 in August of last year but slipped to $5.94 in November. By December, the number was down another two cents and at the end of February the number has fallen to $4.78

The 2016 Zacks Consensus Estimate is also moving the wrong way, with estimates falling from $6.70 in September to the current level of $5.49

This drop in estimates has a lot to do with the two times the company guided below Wall Street estimates for revenue. This happened once in October, and again in January. Both times, the guidance was for 4Q, but was the third time in a row that guidance that came out was below consensus, as the company guided below the range in July as well.

Chart

The price and consensus chart has recently seen the addition of EPS surprises as well. The chat graphs the stock price along with the Zacks Consensus Estimates for the past several years to show how earnings estimates are a primary driver of stock prices. The recent drop in estimates have contributed to a falling stock price and investors would be wise to avoid buying this stock until the estimates turn around and head higher.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

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