Citigroup Upgrades FormFactor to Buy, Sets Target at $44

FormFactor (FORM) shares are sharply higher Tuesday morning after Citigroup’s Timothy Arcuri raised his rating on the stock to Buy from Hold, setting a $44 price target on the maker of semiconductor wafer probe cards.

FormFactor shares had declined 23% from mid-September through Monday night’s close, including a sharp swoon last week after the company disclosed an inventory accounting issue. Arcuri thinks the risk from the issue, which surrounds inventory valuations, is modest. “While it may take some time to resolve the investigation…we note FORM has reserved fully [about] one-third of gross inventories in both fiscal 2006 and fiscal 2006 - a substantial amount even considering the nature of its business - mitigating risk.”

Arcuri also says he thinks the company will “become more shareholder friendly going forward,” possible including “a long overdue buyback.”

He notes that the stock trades at about a 20% discount to big semicap stocks, but is growing faster, with 25% revenue growth likely in 2008.

FormFactor Tuesday is up $1.80, or 5%, to $38.03.