Jefferies International has upgraded its stance on DFS Furniture Plc (LON:DFS) to ‘buy’ from ‘hold’ and increased its price target to 255p from 210p, as it thinks the furniture retailer is ‘back on track’.
In a note to clients, analysts at the US broker pointed out that the small-cap firm operates in an undoubtedly cyclical sector and management still expects the market to decline 2-3% over the next 12 months.
READ: DFS Furniture shares jump as it sounds confident note on outlook
However, they added, DFS’s first half 2018 results proved that with better visibility of market growth, flexibility in operating expenses and marketing cost deflation, it is able to limit operating deleverage.
The analysts said: “We see limited risk of the market deteriorating further giving improving household disposable income trends which gives us increased visibility over DFS’s financial year 2019-2020 free cash flow of £46mln/£59mln.”
They added that despite the challenging market conditions, DFS has grown its share of the UK upholstery market over the past year to approximately 30% through the acquisition of Sofology and eight Multi York stores.
The analysts concluded: “We like DFS’s sofa market leadership and ability to flex its operating costs to deliver growth in profits.”
In lunchtime trading, DFS’s shares were up 0.8% to 231.5p.