Investec stays at 'buy' on Next, points to valuation and consistent cash generation
Analysts at Investec reiterated their 'buy' recommendation for shares of Next, pointing to the shares' supportive valuation and the "consistency" of the company's cash generation to back up their case.
The company also enjoyed the operational flexibility needed to cope with the "challenging" retail market, they said.
"However, we would caution against reading too much across to other retail stocks – the reality is that even though Next’s Christmas numbers are better than expected, the company has still had a tough Christmas," said Alistair Davies.
The retailer's full price sales of its namesake brand clocked in at up 1.5% for the 54 days to 24 December (consensus: -0.5%), thanks to a better-than-expected performance from both its Retail and Directory arms.
Hence management's decision to lift the mid-point of its guidance for profits before tax in fiscal year 2018 by 1% or £8m.
In terms of valuation, the stock was changing hands at a calendar year price-to-earnings multiple of 11.0, versus 14.1 for the wider sector.
Davies also kept his target price for the shares at 4,940p, but added: "Expect some share price relief that Christmas wasn't as bad as expected and no further downgrades."