By Michele Maatouk
Date: Friday 24 Apr 2020
LONDON (ShareCast) - (Sharecast News) - Credit Suisse downgraded its stance on Next to 'underperform' from 'neutral' on Friday as it upped its rating on Marks & Spencer to 'outperform' from 'underperform'.
The bank said Next's shares don't reflect the increasing length of the likely consumer downturn, particularly given the company's modest online volumes and downside risk for credit balances and earnings.
"Although Next is a best-in-class operator, adverse channel mix, its reliance on credit income, and the need to restructure the store estate do not guarantee a strong recovery," CS said.
Credit Suisse cut its current year earnings per share estimate by a another 21%, reflecting a longer downturn, and said that with the shares 35% above the recent lows, on 11.5x 2022 price-to-earnings ratio, they already discount much of the recovery.
The bank trimmed its price target on Next to 4,150p from 4,300p.
As far as M&S is concerned, it said the 59% year-to-date drop in the share price more than discounts its concerns over leverage and liquidity, and that its exposure to the food segment makes M&S comparatively attractive versus clothing peers, "as a longer lockdown and slower recovery implies that apparel retailers will be clearing surplus inventory through to next Spring".
CS cut its 20/21 earnings per share estimate by 53% reduced the price target to 125p from 185p.
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