Shares of LeapFrog Enterprises Inc., which makes educational toys and software, rose Thursday after Stifel Nicolaus raised its rating on the stock, predicting higher profits next year.
In a note to clients Thursday, Stifel analyst Drew Crum said he expects LeapFrog shares to head higher as the company continues to cut costs and shifts to software with higher profit margins.
In the most recent quarter, which ended Sept. 30, LeapFrog reported a 70 percent drop in earnings as sales tumbled 42 percent. But the company also said it had cut expenses by 31 percent.
Crum noted positive signs as the holiday shopping season gets started, citing figures from the National Retail Federation showing about a third of Black Friday shoppers bought toys, up about 13 percent from last year.
"Based on our store checks this past weekend we were impressed by the takeaway of (LeapFrog) software," he added.
Crum raised LeapFrog shares to "Buy" from "Hold" and established a price target of $5.
Shares of LeapFrog, which is based in Emeryville, Calif., jumped 34 cents, or 10 percent, to $3.72. The stock has traded between 57 cent and $4.78 over the past year.