BofA reinstates Next stock with neutral rating, GBP96 target

On Monday, BofA Securities announced the reinstatement of its coverage on Next Plc (LON:NXT:LN) (OTC: NXGPY), assigning the stock a Neutral rating with a price target set at GBP96.00. The decision by BofA Securities to resume coverage comes with an analysis of the company's potential for growth and current valuation. The company, currently valued at $13.65 billion, has demonstrated strong financial performance with a "GREAT" overall health score according to InvestingPro metrics.

Joffrey Bellicha Meller, an analyst at BofA Securities, provided insights into the rationale behind the rating and target price. According to Meller, Next's growth pillars are expected to drive higher revenue growth, building on its impressive 12.83% revenue growth over the last twelve months. However, the analyst anticipates that the company will reinvest the benefits of operating leverage into marketing and digital capabilities. This strategic reinvestment is projected to align the company's financial estimates with both the consensus and the overall industry.

The analyst's valuation model is based on a discounted cash flow (DCF) approach, with a price objective (PO) of 9,600 pence (GBp9,600). Meller's statement clarified the reasoning behind the valuation: "While we recognize the group's growth pillars should deliver higher revenue growth, we expect management to reinvest operating leverage in marketing and digital capabilities, putting our estimates in line with both consensus and the industry."

Next's shares are currently trading at a price-to-earnings (PE) ratio of 14 times, which is consistent with their historical average. InvestingPro analysis suggests the stock is currently undervalued, with additional metrics showing strong fundamentals including a 65% return on equity and an 18.47% return on assets. BofA Securities views this valuation as fair, suggesting that the stock price adequately reflects the company's financial performance and market position.

Investors and market watchers now have an updated perspective from BofA Securities on Next's market performance and future outlook. With the coverage reinstated, Next Plc continues to be a closely monitored entity in the retail sector. For deeper insights into Next's valuation and growth potential, InvestingPro subscribers can access over 30 additional financial metrics and exclusive analysis tools.

In other recent news, Next Plc witnessed an upgrade in its stock rating from RBC Capital Markets, shifting from Sector Perform to Outperform. The upgrade came in light of the company's upward revision of its full price sales guidance from +2.5% to +3.5% year-over-year during its third-quarter report. RBC Capital Markets attributes this positive adjustment to potential higher sales, driven by increased UK marketing expenditure and favorable weather conditions.

Moreover, the analyst from RBC Capital Markets highlighted Next's structural advantages, including its efficient logistics system, comprehensive online product offering, and a well-established customer base. These factors are expected to continue propelling Next's performance.

These are recent developments that investors should keep an eye on, particularly as the retail sector moves into the crucial holiday trading period, which can significantly influence annual results.

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