M Systems Flash Disk Pioneers Ltd. (FLSH)

[midastouch017]

Citigroup upgrades M-Systems, SanDisk to "Buy"
Analysts Craig Ellis and Asiya Merchant: We find compelling value in both names.

Gil Shlomo 27 Feb 06 13:22

Yesterday, Ctigroup upgraded its recommendations ofr M-Systems Flash Disk Pioneers (Nasdaq: FLSH) and SanDisk (Nasdaq: SNDK) from "Hold" to "Buy", saying "we find compelling value in both names."
For M-Systems, Citigroup sets a price target of $38, 47% above its current price. For SanDisk, the price target is $79, some 40% above market.

Citigroup analysts Craig Ellis and Asiya Merchant point out that, in the past month, SanDisk has fallen 22% and M-Systems 25%.

On M-Systems, Ellis and Merchant write: "Our FLSH thesis holds that increasing handset and carrier-centric product breadth fueled by MegaSim/Microelectronica SIM card drivers and a new memory card product line should compliment an IP-rich USB drive business to create long term revenue growth and share appreciation.

"However, share strength in 4Q05 and gross margin risks in 1Q06 have had us on the sidelines pending an attractive entry point which seems to have emerged given a 30% decline from January peak prices and a 22% retrenchment year to date. Valuation now appears reasonable at just 18x and 12x our 2006E and 2007E EPS estimates, the cheapest the shares have been since August 2005.

"Further, record 4Q05 inventory turns position FLSH well for supply-driven contract price decreases which should persist into mid-year. "

The analysts warn however that "risk exists that our call is 3-4 months early, though history argues for opportunism on extreme pullbacks."

Published by Globes [online], Israel business news - www.globes.co.il - on February 27, 2006

http://www.globes.co.il/serveen/globes/docview.asp?did=1000065804&fid=942

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