L Brands Has Value Without Victoria's Secret Deal, BMO Says In Upgrade

Shares of L Brands Inc LB Monday tumbled in after-hours trading on news of Sycamore Partners LLC terminating its agreement to acquire a majority stake in Victoria’s Secret.

Once the noise related to the deal dies down, the focus will be on the company’s underlying fundamental value, according to BMO Capital Markets.

The L Brands Analyst

Simeon Siegel upgraded the rating for L Brands from Market Perform to Outperform with a $17 price target.

The L Brands Thesis

Although Victoria’s Secret generates massive revenue for L Brands, the troubled lingerie brand is likely losing money, Siegel said in the Tuesday upgrade note. (See his track record here.)

The COVID-19 crisis has led to a revenue decline at Victoria’s Secret, which may be a positive, giving management “a very unique opportunity to re-evaluate all aspects of the brand,” the analyst said. This may help the brand become smaller, yet healthier, he said. 

L Brands seems to be preparing Victoria’s Secret to operate as a standalone entity, and the brand is likely to carry positive value, Siegel said. 

Referring to Bath & Body Works, the analyst said that there is no reason to expect sales growth to taper off after the COVID-19 crisis is over. Even assuming lower margins than the 20% range still suggests an acceleration in sales growth from current levels, he said. 

LB Price Action

L Brands shares were down 2.41% at $11.76 at the time of publication Tuesday. 

Related Links:

L Brands Closer To Victoria's Secret Sale, CNBC Says; Link Calls Brand 'Mismanaged'

L Brands Option Trading Extremely Bearish Following Victoria's Secret Buyout Reports

Photo by Samantha Marx via Wikimedia

Posted In: Bath & Body WorksBMO Capital MarketsretailSimeon SiegelSycamore Partners LLCVictoria's SecretAnalyst ColorM&AUpgradesPrice TargetAnalyst Ratings

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.