Electro Optic Systems (ASX:EOS) share price lower despite broker upgrade

Not even a broker upgrade could stop this company’s shares dropping today…

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The Electro Optic Systems Hldg Ltd (ASX: EOS) share price is out of form on Thursday and has failed to follow the market higher.

This is despite the communications, defence, and space company being the subject of a positive broker note this morning.

In afternoon trade, the Electro Optic Systems share price is down 1% to $4.27. This means its shares are now down a disappointing 27% since the start of the year.

Is this a buying opportunity?

According to a note out of Citi, the recent weakness in the Electro Optic Systems share price could be a buying opportunity for investors.

This morning the broker upgraded the company’s shares to a buy (high risk) rating with a price target of $5.15.

Based on the company’s current share price, this implies potential upside of 20% over the next 12 months.

Why did Citi upgrade the Electro Optic Systems share price?

The note reveals that the broker made the move largely on valuation grounds. This follows the aforementioned weakness in its share price in recent months.

In addition to this, the broker notes that the company’s annual general meeting revealed a significant sales pipeline. That update shows that Electro Optic Systems has a pipeline of $1 billion in potential work.

Citi commented: “AGM reveals $1 billion of potential work in advanced stages. We upgrade EOS to Buy/High Risk from Neutral/High Risk, following the -19% share price decline since 29 April 21, noting i) cash collection from a key customer has resumed, with scope for further cash collection in mid CY21 subject to when the first 30 RWS units are invoiced, and ii) EOS is working towards diversifying its revenue base. Further, the current share price appears to be factoring in limited upside from new defence opportunities and other medium to long term opportunities.”

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James Mickleboro does not own Electro Optic Systems shares. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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