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Investing.com -- Bernstein upgraded UK clothing retailerNextto “outperform” and downgradedAssociated British Foodsto “market-perform,” citing diverging earnings visibility and consumer exposure across UK retail, in a note dated Monday.
The brokerage raised its target price onNextto £160 from £150, implying 12% upside, and cut its target price onAssociated British Foodsto £18, implying 4% downside.
Bernstein also reduced its target price onJD Sports Fashionto £1 from £1.60, while maintaining an “outperform” rating, citing continued pressure on lower-income and younger consumers.
Bernstein said it upgraded Next as part of a “flight to quality,” describing the company as “one of the highest quality European apparel retailers alongside Inditex,” with “the strongest consistent returns over the last 10 years in the sector.”
The brokerage said Next delivered a 50% share price increase in FY25 and forecast continued earnings strength.
Bernstein projected earnings per share growth of 8.5% at Next, alongside a core dividend of about 4% to 5% and additional returns of about 4% to 5%, resulting in a total shareholder return of 13% to 14% over the next few years. The brokerage said it expects to be more than 5% ahead of consensus on profit before tax in FY26 and FY27.
For FY26/27, Bernstein forecast revenue of £6.9 billion for Next versus consensus of £6.8 billion, EBIT of £1.3 billion versus £1.28 billion, and profit before tax of £1.26 billion versus £1.20 billion. EPS was forecast at 8.05 pounds, compared with consensus of 7.76 pounds.
Bernstein downgraded Associated British Foods, stating, “even the brightest jewels can lose their lustre.” The analysts cited “continued & deteriorating demand at Primark (low income consumers)” and weakness in U.S. grocery and sugar.
Bernstein said Primark’s performance is weakening “across the UK, US and Europe,” while sugar prices remain low and U.S. grocery demand has softened.
Bernstein said it expects cyclical weakness at Primark and in sugar to continue into FY26 and FY27 and noted that Associated British Foods is “-16% behind consensus in FY26.”
The brokerage said the company lacks “short to mid-term catalysts” and added that any potential breakup would take more than two years to unlock value.
JD Sports retained an “outperform” rating, though Bernstein said it is “increasingly cautious” due to consumer pressures. The analysts noted the stock is trading at 6.7 times next 12 months’ earnings.
In UK food retail, Bernstein said it continues to prefer Tesco over Sainsbury’s following third-quarter results, citing scale and capital returns, while noting resilient grocery performance from both chains.
