Is L Brands' Valuation A Concern? Brean Thinks So

In a report published Tuesday, Brean Capital analyst Liz Pierce initiated coverage of

with a Hold rating and a fair value of $95. In the report Brean Capital noted, "In our view, LB's enviable track record to its powerful brands, experienced management team and a focus on fundamentals has led to LB being the clear leader in lingerie, fragrance and beauty categories." Pierce believes that both Victoria's Secret (VS) and Bath & Body Works (BBW) are poised for "significant global growth," since they enjoy high brand awareness across the world and strong consumer attachment. As international becomes more prominent in the mix, it would become "increasingly accretive" to the company's operating margin, the analyst said, citing its higher margin structure. These positives are already reflected in the current valuation. "LB's operating margin is already industry leading and, therefore, it could be difficult to drive meaningful expansion from current levels," Pierce commented. "The stock is currently trading at 25.8x our FY15 EPS estimate of $3.65, a premium to our estimated 3-year CAGR of 12% and on a relative basis, a premium to its peer group multiple of 10.2x. Accordingly, we believe the stock is fairly valued and would look for a pullback before becoming more constructive in the name," the analyst added.