Citigroup gave a lift to Next PLC (LON:NXT) shares on Friday, upgrading its rating to ‘neutral from ‘sell’ on valuation grounds and as it believes the high street retailer is relatively well placed to cope with the COVID-19 coronavirus impact.
But the US bank trimmed its target price for the FTSE 100-listed clothing and homeware stores group to 4,800p from 5,000p, with the shares currently trading at 4,500p, up 2.6% on Thursday’s close.
READ: Next hikes full year profit guidance as Christmas trading beats forecasts
In a note to clients, Citi’s analysts said: “The shares have sold off c.40% since the coronavirus newsflow started and we believe this is excessive.”
They pointed out that Next’s high EBIT margin (16%) and significant online proportion of sales (c.55%) are buffers to any EPS downgrades.
The analysts added: “The highly cash generative business may see a postponement of its share buyback but there is no balance sheet risk.”
However, the Citi number crunchers said they expect Next to lower their full-year 2021 sales guidance to be lowered to flat from +3%, and pre-tax profit guidance to be cut to £650-670mln from £734mln but with a reassurance that this will largely be recovered in the following year.
The analysts said they have made no changes to their full-year 2020 estimates and leave the pre-tax profit forecast at £727mln in-line with guidance.
But they have cut their full-year 2021 pre-tax profit estimate by 14% to £634mln from £739mln and reduced full-year 2022 by 9% to £684mln from £750mln given the expected impact from COVID-19 in the UK.