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Analysts at Jefferies have responded to Next plc’s (LSE:NXT) recent second profit upgrade within two months by raising their share price target by 10%. The company has increased its full-year profit-before-tax (PBT) forecast from £980 million to £995 million, following a robust first half of the year. This adjustment is attributed to rising online sales revenues, which have effectively counterbalanced lower margins in the physical retail sector.
Next’s shares are currently trading at a record high of 10,470p. Jefferies analysts suggest that this peak should not hinder further growth, given that the company appears to be regaining its momentum. They have set a new price target of 11,400p for the stock, reflecting their positive outlook on Next’s performance.
The key question is whether Next will surpass £1 billion in PBT for the first time in the coming year. Growth trends indicate this could be a real possibility. According to Richard Hunter, head of markets at Interactive Investor, the company's strong performance is driven by several factors.
Hunter notes that Next’s online business continues to thrive, and its international operations present promising opportunities. The company is actively seeking third-party partnerships in the US and Asia, regions where product delivery has traditionally been a challenge. Additionally, Next has significantly increased its overseas marketing spend, rising from £8 million across 19 countries in 2020 to £41 million across 43 countries.
Next has also shifted its strategy towards focusing on full-price sales rather than discounts. This approach has proven successful, as evidenced by a growing proportion of customers purchasing fewer but more expensive items, which could potentially open up new opportunities for the company at higher price points.
However, there is debate about whether this performance is fully reflected in the stock price. Currently trading at 16 times price-to-earnings, Peel Hunt analysts suggest that the stock may already be priced at appropriate levels, which could limit short-term potential for further increases. Despite this, Jefferies' optimistic price target reflects a divided opinion among analysts. Peel Hunt recognizes Next’s significance in the sector but highlights better value with Marks & Spencer Group plc due to more substantial near-term earnings per share upside from M&S’s recovery.
