UPDATE: Oppenheimer Initiates L Brands at Underperform on Risk/Return Downside

In a report published Thursday, Oppenheimer analyst Anna Andreeva initiated coverage on L Brands LTD with an Underperform rating and $46.00 price target.

In the report, Oppenheimer noted, “With its Victoria's Secret (VS) and Bath & Body Works (BBW) divisions, LTD has two market-leading brands domestically and an opportunity to grow its nascent international footprint. At the same time, after two-plus years of high-single-digit comps and operating margin expansion, top-line momentum is flattening out at VS, with margins coming off 17% peaks. After 40% EPS growth on average for the past three years, earnings growth is expected to slow in 2013 (guidance implies 1%-7% EPS growth), although we note that the company usually guides conservatively. With top-line growth slowing and sales productivity/margins at peak levels, the LTD story becomes more about expense management, typically not something the market pays a premium multiple for. LTD is committed to returning excess cash to shareholders with sizable special dividends for the past three years, although given the spike in capex this year and leverage on the balance sheet, we expect the company to use free cash flow for share buybacks and regular dividends, with no special dividend likely until 4Q13. The stock has seen some multiple catch-up as of late, and, while company has done a great job managing the business over the years, trading at 16x and 15x our 2013 EPS and 2014 EPS estimates, we believe risk/return is to the downside.”

L Brands closed on Wednesday at $51.82.