LeapFrog Enterprises shares rise on upgrade

Shares rose 82 cents, or 16.5 percent, to $5.80 in afternoon trading, after falling 22 percent during the week because of a weak outlook.

On Monday, LeapFrog reported that third-quarter profit more than doubled, but lowered its full-year revenue guidance amid a difficult retail environment.

BMO Capital Markets analyst Gerrick L. Johnson said in a client note on Friday that investors are too focused on the guidance.

"We had already anticipated this news and think the market should instead be focusing on improvements in the product portfolio and operating cost savings that should drive longer-term profitability," Johnson wrote in a note to investors.

He reduced his fourth-quarter earnings estimate by 2 cents to 8 cents per share, but raised his rating to "Outperform" from "Market Perform."

"We recognize that near-term results could be pressured, but a modest fourth-quarter miss would not derail our thesis," Johnson wrote. "We think shares are attractively valued and believe they will outperform the market and those of its peers over the course of the next two years."

Emeryville, Calif.-based LeapFrog makes educational toys including the TAG reading system and Leapster handheld learning game system.