Shares in Next shed 2.3 percent, top fallers on a flatFTSE 100 index, which traders attribute to a move byMorgan Stanley to cut its rating on the fashion retailer to"underweight" from "equal-weight" on valuation grounds.
Morgan Stanley writes in a note that it sees no near-termreason why investors should lose confidence in Next's ability tooutperform peers, so it is possible the shares could re-ratefurther.
"However the multiples are already close to 10-year highs,both absolute and relative, so we think the risk reward looksunattractive at these levels," it says.
Next's 12-month forward price/earnings ratio has risen to14.4 times from a trough of around 8.3 times in early 2011,according to Thomson Reuters DataStream, over which time periodthe shares have risen around 130 percent.
Morgan Stanley says it would switch into Marks & Spencer which, according to Thomson Reuters DataStream, tradeson a 12-month forward P/E of 13.8 times.
Earlier this week, Nomura also cut its recommendation forNext on valuation grounds, while expressing a near-termpreference for M&S.
Shares in M&S rise 0.8 percent on Friday.
Reuters messagingrm://tricia.wright1.thomsonreuters.com@reuters.net
Marks & Spencer (MKS)
Next (NXT)