For most of 2017 investors were left wondering if L Brands Inc LB's woes were company-specific or industrywide. As 2018 approaches, one Wall Street analyst said the debate will be settled soon.
The Analyst
Morgan Stanley's Kimberly Greenberger maintains an Overweight rating on L Brands' stock with a price target boosted from $59 to $70.
The Thesis
After two years of showing declining earnings per share, L Brands will show an inflection in sales and earnings, Greenberger said in a research report. (See Greenberger's track record here.)
Most notably, the Victoria's Secret comp — excluding swim and apparel — finally returned to positive territory in October after a nine-month-long streak of flat-to-negative results, the analyst said. The one-year underlying Victoria's Secret comp sans swim and apparel has been gradually improving since June, she said.
Many investors operate under the assumption that L Brands' weak fundamentals are due to structural pressures in the overall retail industry, including falling mall traffic and threats from e-commerce, Greenberger said. But it may be a mistake to assume this will continue in 2018 given the analyst's estimates, which call for 5-percent EPS growth, 2-percent overall comp growth (Victoria's Secret at 2 percent, BBW at 3 percent), 3.2-percent total revenue growth and 30-basis-point margin recovery versus a 150-basis-point decline in 2017 and 200-basis-point decline in 2016.
Price Action
L. Brands was trading down slightly at $58.50 at the time of publication.
Related Links:
9% Downside Seen In L Brands As New Merchandise Struggles To Gain Fans
L Brands: 4 Reasons For Concern
Photo courtesy of L Brands.
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