RBC Capital Markets upgrades Next, sees strong growth ahead

Investing.com -- RBC Capital Markets has upgraded its rating for Next plc (LON:NXT ) to "outperform" from "sector perform," citing optimism about the company’s growth prospects despite current macroeconomic challenges. 

Analysts believe the British retail giant is well-positioned to navigate pressures such as rising labor costs and fluctuating exchange rates while leveraging its strong logistics, diversified product range, and robust customer base to drive performance.

RBC flagged that Next's sales momentum is expected to surpass market expectations, buoyed by increased marketing investment and the brand’s strong consumer appeal. 

The company is optimistic about full-year performance, raising its full-price sales growth forecast to 2.5%-3.5%. 

Analysts anticipate further sales upside, particularly in December, as the retailer benefits from strategic advertising and favorable weather-related comparisons.

Next’s international online business also stands out as a growth driver, with overseas sales accounting for approximately 15% of total revenue and achieving over 20% growth year-to-date. 

RBC forecasts sustained double-digit growth internationally, supported by Next’s expanding partnerships, including its logistics deal with Zalando in Europe.

The company faces headwinds from an expected £47 million impact due to increased labor costs in FY26, stemming from a rise in the UK minimum wage and higher National Insurance contributions. 

However, RBC analysts are confident in Next’s ability to offset these costs through modest price increases and enhanced sourcing efficiencies. 

The retailer’s forward-looking approach to currency hedging and sourcing strategies, particularly in Asia, is expected to minimize cost pressures.

Next's shares are trading at 13.5 times their estimated 2025 earnings, within the middle of its historical range. 

RBC believes this valuation does not fully reflect Next’s enhanced growth trajectory. 

By achieving sustained mid-single-digit revenue growth—above its historical average of 2%—Next warrants a higher multiple, analysts argue. 

RBC has set a price target of 10,800p for the stock, with potential upside to 12,200p under a more optimistic scenario.

Source: Investing.com