Broker snap: UBS upgrades Halfords, hikes price target

31st May 2013 10:12

Car and bike parts retailer Halfords was a strong riser on the FTSE 250 on Friday after UBS upgraded its rating for the stock by two notches from 'sell' to 'buy' and hiked its target price from 280p to 375p.In a research report titled 'Grasping the bull by the horns', analyst Adam Cochrane said that the scale of the issues facing Halfords has now been realised."Halfords is a brand with high market share in its core markets, good resonance with consumers, and finally is undertaking some of the investment required to succeed as a specialist retailer," he said."The level of opex and capex investment required, in addition to the dividend cut, came as a surprise, but we consider that this will put Halfords on a path to sustainable earnings growth in the medium term."The stock was up 4.84% at 325p by 10:46 on Friday.Cochrane believes that the Halfords has "kitchen sinked" its guidance for the year ending March 2014 and sees limited risk to the downside for forecasts. He foresees a "reasonable degree of potential upside if the sales recovery is better than expected."Given that the risk/reward balanced is now "skewed to the upside" and estimated near-term earnings growth is ahead of the wider sector, UBS believes that the recent pull back in the share price provides an "attractive entry point".Nevertheless, the current-year profit before tax forecast has been cut by 15% from £67m to £57m and next year's has been reduced by 8.0% from £68m to £63m to reflect lower retail margins, higher investment and the dividend cut.