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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