Next share price heads south as Morgan Stanley turns bearish on retailer

Analysts argue company’s core business is ‘deteriorating’

Next share price heads south as Morgan Stanley turns bearish on retailer

Shares in Next (LON:NXT) have given up nearly two percent in London in today’s session, with analysts at Morgan Stanley arguing that the group’s core business is ‘deteriorating,’ as reported by Sharecast. The comments come after the blue-chip retailer recently updated investors on its performance, marginally lifting its sales and profit guidance.

As of 14:20 BST, Next’s share price had lost 1.86 percent to 5,020.00p, underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.07 percent lower at 7,533.25 points. The group’s shares have added more than six percent to their value over the past year, and are up by nearly one percent in the year-to-date.

Next downgraded to ‘sell’

Morgan Stanley downgraded Next to ‘underweight’ today, arguing that while the retailer’s 20-percent margin last year was one of the highest of any retailer covered by the bank anywhere in the world, it also thought it will be ‘extremely challenging’ for the group to sustain such elevated margins. The analysts, however, do not expect the company to rebase its margins significantly lower under current management.

“We believe that Next has been running up a proverbial down escalator for some time and there is growing evidence to suggest that it is finding this increasingly difficult to do,” the broker pointed out, as quoted by Sharecast.

Core business deteriorating

Morgan Stanley further argues that while fundamentals in the Next Directory look healthier, it is nevertheless concerning that sales in the core UK Next Directory business are also now beginning to fall, suggesting that “the Next customer proposition may be losing resonance with UK consumers”.

Other analysts are also downbeat on Next, with Barclays recently reiterating its ‘underweight’ rating on the stock, with a price target of 3,900p. According to MarketBeat, the blue-chip retailer currently has a consensus ‘hold’ rating and an average valuation of 4,408.55p. 

As of 14:56 BST, Wednesday, 11 October, NEXT plc share price is 5,015.89p.

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