(RTTNews) - Wednesday, FBR Capital Markets upgraded FormFactor Inc. (FORM: News ) shares to Outperform from Market Perform and increased its price target to $25 from $19.

Analyst Mehdi Hosseini expects FORM to meet his third quarter above-consensus estimates. Although the company could follow the past few quarters' tradition and not provide guidance, the analyst views the recent 30%-plus correction in the stock as already dialing in the risk of downward adjustment to consensus' fourth quarter revenue estimate.

Therefore, the analyst encourages investors to consider factors when evaluating the risk/reward profile. The advanced probe card market, FORM's core market, is expected to grow six times faster than the legacy probe card market, exceeding $1 billion by calendar 2011, more than doubling from calendar 2009 through calendar 2011.

The analyst said that FORM's design wins from late last year and early this year are beginning to lead to material revenues. Migration from DDR2 to DDR3, combined with migration to smaller technology nodes, could, in the analyst's view, lead to a TAM of at least $800 million for just the commodity DRAM part of the advanced probe card market.
The analyst noted that Mobile DRAM, going forward, could provide FORM with an additional $40 million/year of revenues. NAND-related revenues will be incremental and material by second half of 2010.

Thus, with an EPS power of more than $1.00 in the next up-cycle, net cash of $9.87/share, book value of $12.47/share, combined with the recent 30%-plus pullback in the stock, the analyst finds the risk/reward compelling, $7.00-plus to the upside, $3.00 to the downside, into the earnings report, prompting him to upgrade to Outperform.

Currently, FORM is down $0.09 or 0.50% and trading at $17.98.

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by RTT Staff Writer

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