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Victoria's Secret Turnaround Bodes Well For L Brands, Despite Retail Woes

Victoria's Secret Turnaround Bodes Well For L Brands, Despite Retail Woes

Analysts at Atlantic Equities turned bullish on L Brands Inc (NYSE: LB) after conducting on the ground checks at stores. The firm's Daniela Nedialkova upgrades L Brands' stock rating from Neutral to Overweight with a $56 price target.

While visiting Victoria's Secret stores the analyst found several changes that could prove to drive a positive comp inflection over the coming few months. Specifically, stores allocated a much smaller space for lower-priced bralettes while allocating a bigger share of the sales floor for higher-priced and high-fashion products.

Meanwhile, L Brands' other property, Bath & Body Works, continues to look attractive despite concerns of a slowdown, the analyst continued. The store's brand will likely continue to comp positively and be able to defend its market share through reinvestment in marketing along with continued innovation.

Also, a meeting with the retailer's management team expressed a "high belief" in Victoria's Secret ability to turnaround, but more important, management is equally committed to improve profitability through a sales turnaround, or an expense base reset.

Finally, L Brands' dividend yield of around 6 percent is "safe in our view" and the stock price itself is "very depressed" at a 12.8x multiple. However, once Victoria's Secret shows signs of improvements the stock will rerate back towards a high-teens PE multiple.

"Having observed the changes to the VS store assortment and the new product/collection launches this month, we are confident that the sales trend at VS will inflect through year-end and return to a solidly positive pace through 2018," the analyst argued.

At time of publication, shares of L Brands were up 3.99 percent at $42.53.

Related Links:

L Brands: 4 Reasons For Concern

Victoria's Secret Issues Are 'Self-Inflicted,' But L Brands Can Bounce Back
Image Credit: By Dwight Burdette, CC BY 3.0, via Wikimedia Commons

Latest Ratings for LB

Nov 2019MaintainsNeutral
Nov 2019Initiates Coverage OnUnderweight
Nov 2019MaintainsNeutral

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