SanDisk shares fall after Goldman downgrades, predicting mediocre stock performance

SanDisk shares fall after Goldman downgrade

NEW YORK — Shares of SanDisk Corp. headed lower Wednesday after Goldman Sachs cut its rating to “Neutral” from “Buy”, predicting a mediocre performance from the chip maker’s stock over the coming months.

In a note to investors, analyst James Covello said he still sees improvement for flash memory cards used in consumer electronics, SanDisk’s main business.

Additionally, tight manufacturing capacity should bring more stability in prices and profit margins, he said.

But Covello added that the real value of the company is in the revenue it generates through royalties. He estimates that side of the business is worth $20 to $25 per share, about where the stock is trading now. Shares have traded between $5.07 and $24.61 over the past year and are up strongly over the past six months.

Meanwhile, the analyst hiked his rating on chip maker Texas Instruments Inc. by one notch to “Buy.” He said the company has lower costs than its competitors, which should help it take market share and grow profit margins. He expects TI to approach its target margin of 55 percent of sales in the second half of 2010.

Last week, SanDisk posted earnings of $231 million for the third quarter, reversing a year-earlier loss of $166 million. Sales climbed 14 percent to $935.2 million.

Also last week, TI reported a drop in earnings and sales in the most recent quarter. But its forecast for the three months ending in December was well above Wall Street expectations.

SanDisk shares dropped 85 cents, or 3.8 percent, to $21.84 in midday trading Wednesday, while TI inched up 33 cents to $24.01.