The analysts covering NEXT plc (LON:NXT) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
Following the latest downgrade, the current consensus, from the 16 analysts covering NEXT, is for revenues of UK£3.4b in 2021, which would reflect an uneasy 20% reduction in NEXT's sales over the past 12 months. Statutory earnings per share are anticipated to plummet 57% to UK£2.01 in the same period. Previously, the analysts had been modelling revenues of UK£3.8b and earnings per share (EPS) of UK£3.19 in 2021. Indeed, we can see that the analysts are a lot more bearish about NEXT's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
Despite the cuts to forecast earnings, there was no real change to the UK£53.14 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic NEXT analyst has a price target of UK£70.50 per share, while the most pessimistic values it at UK£39.98. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await NEXT shareholders.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that sales are expected to reverse, with the forecast 20% revenue decline a notable change from historical growth of 0.8% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 2.8% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - NEXT is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of NEXT.
Worse, NEXT is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. See why we're concerned about NEXT's balance sheet by visiting our risks dashboard for free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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