Analysts from RBC Capital and Susquehanna share their thoughts on flash storage company SanDisk Corporation (NASDAQ:SNDK) and conglomerate Alphabet Inc (NASDAQ:GOOGL) following a Cloud conference and merger, respectively. While one analyst believes the cloud sector represents long-term growth for Google even amidst stiff competition, the other downgrades SanDisk due to a lower than expected closing price for the merger.
Analyst Mehdi Hosseini of Susquehanna weighed in on digital storage company SanDisk following this week’s news of shareholder approval of a $17 billion merger where Western Digital will pay $67.50 in cash and approximately .24 shares for every share of SanDisk. Until recently, the deal was valued at $19 billion due to Chinese technology company Unispledour wanting a 15% stake in Western Digital as part of the investment agreement. However, Unsipledour backed out of the deal in late February, which reduced the overall value of the merger. The analyst downgraded SanDisk from Positive to Neutral and decreased his price target to $79 to $86.50, commenting on the value of the deal and the next steps.
He states, “We are downgrading SNDK shares to Neutral (from Positive) and lowering our price target to $79 from $86.50 to reflect the consideration paid by WDC for SNDK shares upon closing…. We note China’s MOFCOM remains the only regulatory approval outstanding in order for the deal to close, and we ultimately believe MOFCOM will approve the deal – even though the Unis investment fell through. In fact, WDC’s other JV with Unis in China (Storage Systems) remains intact, which would give Unis the ability to distribute WDC products – giving us additional comfort in the prospect of MOFCOM approval. We estimate total deal consideration to be ~$79.10/share for SNDK, consisting of $67.50/share in cash and ~$11.60/share in equity consideration. As such, given that our updated price target represents only ~2% upside from the current share price, we are downgrading to Neutral.”
Medhi Hosseini has a 41% success rate recommending stocks with an average loss of (6.4%) per recommendation. According to TipRanks, out of the 11 analysts who have rated the company in the past 3 months, 1 gave a Buy rating, 1 gave a Sell rating, and 9 remain on the sidelines. The average 12-month price target for the stock is $76.40, marking a 1% upside from current levels.
RBC Capital analyst Mark Mahaney provided his insights on Alphabet after he attended the company’s annual Google Cloud conference. The conference highlighted new business from Disney and Spotify, though limited in use. Notably missing from the conference was the mention of business from Apple. As a result, the analyst “wouldn’t describe [his] takeaways as actionable.” However, he did walk away with “a very strong endorsement of the industry shift towards Cloud Computing, several promising new product launches, and a very clear commitment to having Google be a major Cloud vendor.”
Although the company faces stiff competition in this sector, the analyst believes the company is destined to be a viable player in the industry for a few reasons, citing hopeful statements by company leadership. First, the analyst cites a statement of CEO Sundar Pichai regarding the transition to the cloud. Pichai stated. “We believe that in the future, almost everything will be done in the Cloud, because it’s a better way of doing business,” and Google has jumped on the bandwagon, having “over 7 [cloud] products with 1B+ users…”
Chairman Eric Schmidt indicated the company has also advanced into machine learning to optimize its cloud computing products, which Mahaney believes compliments “Google’s scale, automation, and technology strengths.” However, he is unclear as to how ML will “[play] out in the marketplace.” Mahaney notes other opportunities in its enterprise segment, having over 2 million existing customers. Diane Greene, the company’s Cloud SVP, also commented Google’s Cloud progress, noting core product success. However, she stated the segment has sales challenges in enterprise. She also stated three competitive advantages of Google Cloud, such as value through favorable pricing, less risk due to the company’s security reputation, and innovation. Related to Greene’s comments, SVP of Technical Infrastructure Urs Hölzle pointed out the year’s past successes and highlighted the firm’s planned differentiation strategy in the cloud sector.
The analyst reiterated his Outperform rating and $1000 price target. He states, “We still view Google as a very distant #3 player (behind AWS and Azure), but through product innovation we see Google drawing on its scale & automation advantages and see this segment as a very promising long-term revenue/profit generator.” Mark Mahaney is ranked #10 out of 3,089 analysts on TipRanks. He has a 59% success rate recommending stocks with an average return of 17.7% per recommendation.
According to TipRanks, of the 37 analysts who have rated Alphabet in the past 3 months, 36 are bullish while one remains on the sidelines. The average 12-month price target for the stock is $924.19, marking a 23% upside from current levels.