Jefferies & Co. upgraded its rating on shares of RadiSys Corp. (NASDAQ: RSYS) to "buy" from "hold" while maintaining its price target of $10.

"We believe the shares are attractively valued based on our sum-of-the-parts analysis. RadiSys’ recent acquisition of Continuous Computing factors positively into our valuation. We’re raising our rating on RadiSys stock as we believe the valuation is compelling, particularly in light of the company’s recent acquisition of Continuous Computing," said George Notter, an analyst at Jefferies.

Notter said its price target remains $10 and is based on his sum-of-the-parts analysis which assumes: no value for the legacy products; and $289 million in value for the Next Gen Communications business (or 1.2 times of 2012 sales).

Notter noted that this reflects an equity value/2012 multiple for the Next Gen Communications business that is just a touch above the group average of 1.2 times -- conservative in his opinion given that he expects it to grow in the 15 percent to 20 percent range (organically) in 2012, and he estimates peers will growing in the high-single-digit range.

Notter has included no cash in his valuation as the company expects to exit third quarter with $50 million in cash and $50 million in debt (at which point the company expects to be cash flow positive going forward).

RadiSys reported second quarter results last Thursday. The company's second quarter revenues grew 8.5 percent sequentially to $79.9 million, well above consensus of $72.7 million and guidance for $71 million to $75 million. Robust sales from the legacy Traditional Communications Networking segment drove the revenue upside.

RadiSys' second quarter earnings totaled $0.18 per share, above the Street’s estimate of $0.12 per share and guidance range of $0.10 to $0.15 per share.

The company provided relatively detailed guidance for both the remainder of 2011 and for full-year 2012. Notter said his prior estimates (and he believes the Street's) aren't directly comparable to guidance given the July acquisition of Continuous Computing Corp.

However, Notter noted that guidance for 2012 revenue of about $350 million and EPS of $0.83 reflects significant accretion versus Consensus revenue and EPS (prior to the second quarter report) of $307 million and $0.68, respectively. This reflects annual operating expense synergies of roughly $8 million to $10 million.

The brokerage raised its 2011 EPS estimate for RadiSys to $0.63 on revenue of $350 million from $0.45 on revenue of $282 million, and its 2012 estimate to $0.83 on revenue of $352 million from $0.67 on revenue of $266 million.

RadiSys stock closed Monday's regular trading up 1.01 percent at $8.02 on the NASDAQ Stock Market.

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