Why Sandisk Stock Rocketed Higher (Again) Today
Key Points
Sandisk's investor day late last week ignited a rally that continues to gain steam.
The company is planning to significantly increase its capital returns to shareholders.
The stock is still attractively priced.
- 10 stocks we like better than Sandisk ›
Shares of Sandisk (NASDAQ: SNDK) charged sharply higher on Monday, jumping as much as 10.6%. As of 10:54 a.m. ET, the stock was still up 10.4%.
The semiconductor specialist continues to run higher in the wake of the company's eye-opening investor day.
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Show me the money
Sandisk held its investor day on Thursday and laid out ambitious plans for its financial future. The company announced a backlog of $93.9 billion in total contract value (TCV), though that amount could be higher based on the company's new business model (NMB) pricing. Sandisk has instituted multi-year contracts with floor (minimum) pricing that ensure the company's current windfall continues, as management is targeting 80% adjusted gross margins between 2028 and 2030.
Investors will share in the wealth, as management unveiled plans to return 100% of Sandisk's excess cash to shareholders.
Wall Street's enthusiasm for the company's plans was palpable. Numerous analysts increased their price targets and issued bullish commentary on the heels of Sandisk's investor day presentation.
The most bullish among them was JPMorgan analyst Harlan Sur, who reinitiated coverage with an overweight (buy) rating and a price target of $2,250, representing 37% upside from Friday's closing price. The analyst said Sandisk is "uniquely positioned" to capitalize on the "structural inflection" in demand for NAND flash memory, driven by the ongoing adoption of artificial intelligence (AI).
Even after today's rally, Sandisk stock is selling for less than 25 times earnings, an attractive multiple for a company growing revenue and profits at triple-digit rates. Some investors remain concerned about the cyclicality of chip stocks. That said, the company's moves to lock customers into multi-year contracts with minimum pricing ensure the cycle won't end any time soon.
As such, I would argue that Sandisk stock remains a buy.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Danny Vena, CPA has positions in Sandisk. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
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