Why SanDisk Stock Will Flash to $130 After Pick-Off of Fusion-io

NEW YORK (TheStreet) – With shares of SanDisk (SNDK) now resting near 52-week highs, investors are biting their nails trying to decide if they'll ever get a better chance to sell. But that shouldn't be a concern unless you need the money right away. SanDisk should be in good shape for years to come.

SanDisk management has placed the company on an accelerated path to become the name in enterprise solid-state drive storage on the heels of the company's recent acquisition of Fusion-io (FIO).

With the accretive potential for double-digit earnings per share starting in 2015, plus prospects for long-term enterprise revenue growth, SanDisk will be on solid ground for many years. And the stock now has the potential to reach $130 in the next 12 to 18 months -- even though shares are up 45% year to date and 175% over the past two years.

Investors are too preoccupied dissecting the value of the Fusion-io deal. The talking points focus on whether SanDisk's 21% premium was too much or too little.

None of that matters at this point. The more pressing question should be how much value the SanDisk management has created.

The 21% premium for a struggling company may seem like a lot. But investors are discounting Fusion-io's strong position with customers such as Facebook (FB), Hewlett-Packard (HPQ) and Apple (AAPL). Combined, these companies contribute to 61% of Fusion-io's total revenue.

The way I see it, the $1.1 billion all-cash deal -- which represents only 17% SanDisk's net cash balance -- will allow SanDisk gain a slice of the business from three of the largest enterprises in the world. At the same time, this deal accelerates SanDisk's ability to secure more enterprise business as demand for flash memory grows.

Neither SanDisk or Fusion-io could be reached for comment. But during the announced deal, SanDisk CEO Sanjay Mehrotra said,

“Fusion-io will accelerate our efforts to enable the flash-transformed data center, helping companies better manage increasingly heavy data workloads at a lower total cost of ownership.”

Mehrotra's comments were heard loud and clear by SanDisk rivals like Seagate (STX) and Avago (AVGO). They are beginning to understand the logic behind this move.

The deal is expected to close in the third quarter of this year.

When it does, SanDisk will be able to leverage its global scale to grow Fusion-io's sales in ways that that it would take Fusion-io itself decades to build. And it's only just begun. Over the next couple of years, the total addressable market for enterprise SSDs will grow to more than $8 billion, more than doubling the current market.

SanDisk is moving to where it expects the puck will be.

But SanDisk management is smarter even than most realize. While $8 billion growth in the market represents a nice chunk of potential revenue, I think SanDisk management has its eyes set on a larger objective.

While Fusion-io is certain to boost SanDisk's revenue in the fast-growing data center market, this also makes SanDisk an acquisition candidate at some point down the road. I think a company like IBM (IBM) that has plenty of cash and very little growth would make a great suitor.

SanDisk's push into enterprise would fit well with IBM's current enterprise position. Not to mention, SanDisk's storage capabilities should liven up IBM's past failures in storage. And when you consider the total addressable market for embedded and removal memory will grow to over $40 billion in the next three years (up 45%), this would give IBM (or another company) additional revenue streams.

For now, SanDisk investors have to be pleased with this deal, which is a 71% discount to Fusion-io's price of three years ago.

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At the time of publication, the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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