Should You Buy Next?

LONDON -- I am backing Next  (LSE: NXT  ) to continue printing steady earnings growth in the coming years.

True, the retail environment is likely to remain sticky for some time, as enduring weakness in the British economy combined with rising inflation continue to cut into consumer spending power.

But Next has a knack for driving profits higher regardless of the economic backdrop, as illustrated over the past few years, and I see no reason for the company not to maintain this trend moving forward.

Sales growth remains in fashion
The clothing chain announced in January's trading update that Next Brand sales rose 3.9% from the beginning of November to Christmas Eve last year.

The firm also reported excellent trade at its splendid "Next Directory" online and catalogue division, where revenues rose 11.2% from the same period in 2011.

The retailer is taking active steps to expand and enhance this area, both at home and abroad, and will roll out a raft of measures intended to improve service -- this includes implementing more delivery slots and express delivery options.

Attractive shareholder returns
Next also confirmed in its update that last year's share buyback program came in at 241 million pounds, above its target 200 million pounds.

The company's enviable ability to generate oodles of cash should see it boost purchases in 2013, and the firm plans to return up to 250 million pounds to investors through further buybacks.

City analysts expect earnings per share (EPS) growth to remain in double-digit territory over the medium term, following the 17% increase to 254 pence forecast for last year. Results for 2012 are due on March 21.

EPS is forecast to rise 12% to 283 pence in 2013 and a further 10% next year to 312 pence.

In addition, the retailer offers an attractive, if not mind-blowing, dividend policy to sweeten the investment case. The group's policy of steadily increasing its payout is expected to result in yields of 2.4% and 2.6% for 2013 and 2014, respectively, brokers estimate.

Next's shares do not come cheap, however, with a P/E ratio of 14.7 and 13.4 anticipated for this year and next. But I think that its reputation as a solid earnings generator, in both the good and bad times, makes it an attractive pick.

Home in on other sterling stocks
If you already hold shares in Next and are looking for excellent earnings prospects elsewhere, this special report highlights the possible FTSE winners identified by ace fund manager Neil WoodfordWoodford, the head of U.K. Equities at Invesco Perpetual, has more than 30 years' experience in the industry and boasts an exceptional track record when it comes to selecting stock market stars.

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