Baird Raises L Brands' Price Target To $80

L Brands Inc LB reported its Q2 results ahead of expectations and provided “an encouraging update on several fronts,” Baird’s Mark R. Altschwager said in a report. He maintained a Neutral rating on the company, while raising the price target from $74 to $80.

Encouraging Signs

L Brands reported a Q2 beat and raised its F2016 guidance. Analyst Altschwager mentioned that the encouraging signs included:

• Guidance appearing conservative
• Competitive fears could prove overblown
• The company may be able to partially offset revenue headwinds from category exits in 2017

Transitional Period Looks Good

There is low visibility into the VS category’s near-term sales and margins, and this has fueled investor concerns over the segment’s competitive positioning, Altschwager noted. He added, however, that although the company may take time to address these concerns, “we’re encouraged by above-plan results—suggesting that management is navigating choppy waters well.”

L Brands’ top-line growth was in part driven by clearance activity, while the VS brand also had strong momentum in PINK and the emerging growth categories.

BBW maintained a strong momentum, with comps at +6 percent and some operating margin expansion in Q2.

“Management is making progress on the remodels with generally consistent results. Today, as BBW operates at historically high margins the company is taking the opportunity to invest (real estate, speed, merchandise) for sustainable growth–a positive for the long term,” the analyst commented.

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