What happened
Shares of Flex (FLEX -1.60%) are rising today, up by 12% as of 1:34 p.m. EDT, after getting positive commentary from Wall Street. RBC Capital and J.P. Morgan both upgraded their respective views on the consumer electronics contract manufacturer.
So what
RBC Capital analyst Robert Muller raised his rating on Flex shares from sector perform to outperform while also increasing his price target from $12 to $16. The analyst suggested that investors are not fully appreciating the value of NEXTracker, the solar-tracking company that Flex acquired in 2015 for $245 million. Muller is encouraged by the recent public debut of Array Technologies, which saw its stock surge by nearly 70% on the first day of trading earlier this week. Array is a smaller solar-tracking company based in New Mexico.
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J.P. Morgan maintained its overweight rating on the stock but analyst Paul Coster raised his price target from $14 to $16. Coster similarly suggested that Array's strong debut would bring investor attention to NEXTracker.
Now what
"Following Array Technologies' IPO, we see a path by which FLEX could unlock its stake either via a spinout or an outright/partial sale," Muller wrote in a research note to investors. "Regardless of any corporate action taken, we upgrade FLEX to Outperform given the embedded value."
Coster thinks that NEXTracker can become a $1 billion revenue run rate business, and his new valuation estimate was derived from a sum-of-the-parts methodology.
Flex reports fiscal second-quarter results on Oct. 29. Its outlook calls for revenue of $5.4 billion to $5.7 billion.
