Why Flextronics International Ltd. Shares Could Pop 25%

Does this analyst make a good case? Or is it just more noise from Wall Street?

May 22, 2014 at 1:32PM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Flextronics International Ltd. (NASDAQ:FLEX) popped 4% today after Needham & Company upgraded the contract electronics manufacturer from hold to buy.

So what: Along with the upgrade, analyst Sean K.F. Hannan planted a price target of $12.50 on the stock, representing about 30% worth of upside to yesterday's close. So while contrarian traders might be turned off by Flextronics' year-to-date price strength, Hannan's call could reflect a sense on Wall Street that its improvement prospects still aren't fully baked into the valuation.

Now what: According to Needham, Flextronics' risk/reward trade-off remains rather attractive at this point. "Considering FLEX's scale and what's historically been a less favorable mix model vs. more nimble peers, we came away impressed that positive multi-year mix shifts appear to be under way," said Hannan "Ultimately, we see the model improving on multiple fronts as another stage kicks in that should yield improved visibility, better margins and ultimately earnings growth." When you couple that upbeat outlook with Flextronics' single-digit forward P/E, it's tough to disagree with Needham's bullishness. 

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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