Hollysys Automation Upgraded To Overweight At Morgan Stanley As Rail Business Is Expected To Outperform

Shares of Hollysys Automation Technologies Ltd (NASDAQ: HOLI) are surging substantially on Wednesday, after Morgan Stanley analysts Kevin Luo and Frank Xu upgraded the stock from and Equal-weight rating to an Overweight. They also raised their EPS estimates moderately to reflect new product penetration in the rail segment, and boosted their price target from $24 to $26.It should be noted that all of this bullishness is tied to the rail business, Hollysys Automation's main customer. Morgan Stanley expects the rail business to outperform the market in fiscal 2016 and fiscal 2017. While they "remain cautious on China's rolling stock market during," they believe the company "can outperform as its new products penetrate the market, especially China's track circuit market," which they expect to be similar to those sub-segments Hollysys is now engaged in (ATP and TCC). Moreover, Luo and Xu think track circuit will be Hollysys' third major product in the rail segment, and expect the first order to be received in the first half of 2016. Revenue should arrive some time later that year.On top of this, the analysts highlight that the stock fell considerably over the past couple of months, opening an attractive entry point for investors. However, the window is no longer available after Wednesday's surge.