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

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Victoria's Secret Turnaround Bodes Well For L Brands, Despite Retail Woes
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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
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Image Credit: By Dwight Burdette, CC BY 3.0, via Wikimedia Commons

Latest Ratings for LB

DateFirmActionFromTo
Sep 2018Bank of AmericaUpgradesUnderperformNeutral
Sep 2018NomuraMaintainsNeutralNeutral
Aug 2018CitigroupMaintainsBuyBuy

View More Analyst Ratings for LB
View the Latest Analyst Ratings

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