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LF Stock Surges After UBS Upgrade

Li & Fung Ltd. stock was up 7.8 percent after UBS AG upgraded the stock from Sell to Neutral. The Hong Kong based supplier of clothes and toys advanced to HK$11.10 – the biggest gain in 17 months.

Sluggish orders from the U.S., the outsourcer’s biggest market, contributed to a value drop of over 50 percent since January 2011. The firm announced in March that it will miss its operating target of $1.5 billion by 2013, and Standard & Poor’s lowered their credit rating in April.

“We upgrade Li & Fung to Neutral due to a lack of near-term catalysts and lower settlement on previous acquisitions,” UBS analysts led by Spencer Leung wrote in a note to clients.

Macquarie Securities and Morgan Stanley upgraded Li & Fung in March, on good news about its balance sheet and dividends. Analysts at Morgan Stanley said that negativity about the stock is “mostly priced in.”

UBS analysts also had grimmer news, saying, “Our long-term de-rating thesis remains intact. The golden decade of China sourcing has passed as the wage advantage diminishes.”

This will cause Li & Fung’s slowdown in acquisitions and decline in dividends to continue, said the analysts.

Last year, Li & Fung missed the profit expectations of 17 analysts that had been compiled by Bloomberg. Profit was down 9.4 percent to $617 million – the first profit decline in four years for the company.

The firm was holding $680 million in cash at the end of 2012, against $426 million in 2011, according to Bloomberg.

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