(Updates with details)
TOKYO, April 30 (Reuters) - Credit Suisse First Boston (CSFB) said on Wednesday it had raised its investment rating on Honda Motor Co to "outperform" from "neutral", adding that shares in Japan's second-largest auto maker had been oversold.
The rating change comes after Honda last week reported a 7.8 percent rise in operating profit to a record 689.45 billion yen ($5.75 billion) in 2002/03, better than the company's estimate of 660 billion yen.
For 2003/04, Honda forecast a decline to 620 billion yen due to unfavourable exchange rates, a tough market at home and a slower rate of growth in the crucial U.S. market.
"We regard these company forecasts as extremely conservative," CSFB analyst Koji Endo, wrote in a note to clients, predicting Honda would post a profit of 690 billion yen.
"The difference between our forecast and the company's is mainly the result of currency contracts at levels below (yen weaker than) 116 yen/dollar and better-than-expected growth at the U.S. sales subsidiary," Endo said.
Honda's stock price had fallen 16 percent since the start of the year by Monday's close and marked a 19-month intraday low of 3,570 yen last week.
The shares jumped after CSFB's upgrade, rising 6.5 percent to 3,930 yen by the close of morning trade on Wednesday. That outperformed the Nikkei average's gain of 1.84 percent.
CSFB believes Honda will outperform the market on a six-month holding period and set a target price of 4,500 yen.
Endo attributed the stock's recent decline to concerns over the selling of widely held issues by corporate pension funds, which are expected to unload blue chips before returning a portion of their pension fund to the state later this year.
Worries about the unwinding of cross-held shares, a stronger yen and the U.S. economy were also factors, Endo said. Endo said the stock had been oversold at a price-to-earnings ratio (PER) before Wednesday's share price jump of between seven and eight, based on CSFB's forecast for earnings per share (EPS) of 478.36 yen in the current year to March 2004. ($1=119.91 Yen)