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shares soared on Thursday after an analyst upgraded the stock on valuation, suggesting short-sellers might want to cover their positions ahead of the company's earnings.

The electronics manufacturing services firm's stock was recently up 9.2%, or 29 cents, to $3.44.

"Our upgrade is valuation focused more than anything, but we also feel its quarter and guidance will be solid, based on our checks," Bear Stearns analyst Kevin Kessel wrote in a Thursday note, raising his rating from underperform to peer perform.

The company reports third-quarter earnings next Thursday.

Kessel noted that five weeks ago the stock was trading "undeservedly" in line with the P/E ratios of its EMS peers when excluding cash, but had now slipped to a 13% to 17% discount to its peers.

Kessel said his upgrade isn't necessarily a call to buy shares ahead of Solectron's quarterly earnings, as it is a call to cover the shorts and "ease up on the selling into the quarter."

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Solectron's strong balance sheet and excellent repair and warranty operations differentiate it from the competition, he noted. However, the recent departure of COO Marc Onetto and the possibility that the company may lose share with its biggest customers,

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over the next 12 to 18 months, still weigh on the company.

Bear Stearns does and seeks to do business with the companies covered in its research reports.