Analysts' Upgrades: SNDK & MAT on solid Q3; Sprint's acquisition

Last week it was confirmed that Japan’s Softbank (TYO:9984) will acquire 70 percent of US based telecom Sprint Nextel (NYSE:S). The terms of this strategic acquisition are that Softbank will invest approximately USD 20.1 billion in Sprint, with USD 12.1 bn being paid to current shareholders and USD 8 bn of new capital being pushed into the business. Sprint Nextel's shares skyrocketed on the rumour and have now gained 12 percent in 12 days.

Following the news, investors might see Softbank as an interesting global telecom play. Completing the acquisition, Softbank will have an operating base as one of the largest mobile internet companies in the world. Furthermore, combined telecom service revenues of Sprint and Softbank will rank as number three amongst global telecommunications operators.

Two days after announcing the acquisition by Softbank, Sprint Nextel announced it had acquired a majority stake in its wireless network partner Clearwire Corp (increasing its holdings by 2.8 percent from a previous 48 percent holding).
Following the confirmation of acquisition talks, analysts have become increasingly bullish on Sprint’s stock potential, raising the average target price by 5.7 percent.

Sprint Nextel will report its Q3 results on October 25 and Softbank reports on October 31.

The US hard drive maker, SanDisk (NASDAQ:SNDK), massively beat analysts’ earnings expectations last week. Even though sales were down 10 percent y-o-y, SanDisk’s earnings per share for Q3 were 45 percent higher than analysts had expected, sending the shares higher in last weeks’ trading.

The main drivers behind the strong earnings were better than expected retail sales and high demand for mobile devices, for which Sandisk manufactures flash memory. The results were furthermore supported by increasing prices for flash memories during the quarter, after having dropped as much as 60 percent earlier this year.

With more favourable pricing going into the next year and increased demand for hand-held devices both management at SanDisk and analysts believe the future to be even brighter for the company. As a result, analysts have increased their targets on the stock by 5.6 percent for the past week and expect the stock to have an average upside potential of 14 percent. Furthermore,  analysts have boosted the Q4 EPS estimate by 22 percent over a one month period. 

Barbie doll producer, Mattel Inc. (NASDAQ:MAT), benefitted from higher prices and cost cutting for the past quarter. The company reported its Q3 earnings, beating analysts’ expectations on both top and bottom line items. In adition to price hikes and cost-cutting, Mattel reported improved sales figures of its Fisher-Price, Monster High and American Girl products in Q3. With solid quarterly earnings analysts have bolstered their expectations of the company’s stock performance and raised the average target price to USD 40.7, or by 5.4 percent.

In Q3, Mattel’s gross margin rose to an impressive level of 53.7 percent, with revenues increasing by 4 percent and cost of goods sold (COGS) decreasing by 7.7 percent. Mattel’s 17.6 percent net margin for the quarter was also a handsome improvement from last year’s 15 percent.

Mattel is now heading into its most lucrative quarter, the holiday season. Last year, the fourth quarter alone counted for roughly 48 percent of the company’s revenues and earnings.

Table 1 gives you the total overview of the past week’s upgrades. Several big names are on the list such as Nokia (HEL:NOK1V), Verizon (NYSE:VZ) and eBay (NASDAQ:EBAY).

For additional details about these stocks, take a look at Saxo Bank’s Equity Research offering here.  

You can read about last week's analyst downgrades in Matt Bolduc’s article today: Analysts' Downgrades: New massive downgrades on CMG, AMD and SVU

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