Jabil Circuit Inc. Wednesday was upgraded to buy from neutral at Merrill Lynch, which cited the electronic parts manufacturer's better-than-expected results for the third quarter.

Merrill Lynch also raised its price target to $18.50 from $13.50.

"We have increased confidence in the leverage story following [Tuesday's] results and are convinced the operating leverage produced in the third quarter on slightly less-than-expected sales is repeatable in coming quarters," analyst Steven Fox said in a note to clients.

Fox said the key metric is incremental margins, which he said can be as high as 18% on the next $1 billion in revenue given "unabsorbed" overhead. He added that Jabil Circuit has appropriately set expectations for its under performing units, while having also "weathered the storm" from integrating the acquisition of Taiwan Green Point.

"We think upside is at least another 15% to 20% without making heroic assumptions on leverage," Fox said.

Late Tuesday, Jabil Circuit reported third-quarter adjusted earnings of 26 cents a share, above the mean analyst expectation of earnings of 20 cents a share. Revenue rose 3% to $3.09 billion, in-line with the consensus estimate.

Shares closed Tuesday at $14.33. Casey Logan cl/pc

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