Why Bank Of America Analysts Are Bullish On L Brands


L Brands Inc LB and soon-to-be spun off Victoria’s Secret have Bank of America analysts bullish.

The L Brands Analyst: Lorraine Hutchinson, CFA, reiterated the firm’s Buy rating of L Brands and $90 price target.

The L Brands Takeaways: L Brands intends to spin-off Victoria’s Secret on Aug. 2, giving L Brands shareholders three shares of Victoria’s Secret for each share of L Brands, said Hutchinson.

Following the spin-off, L Brands will begin trading under Bath Body Works, Inc. BBWIVictoria’s Secret, Inc. VSCO will begin trading as well, according to an L Brands press release from July 9.

Based on L Brand’s Friday closing price of $73.50, the analyst estimates Bath Body Works trades at 9.5x FY22 EV/EBITDA and Victoria’s Secret trades at 5.5x FY22 EV/EBITDA.

A 9.5x FY22 EV/EBITDA multiple is particularly low considering Bath Body Works has “one of the most consistent growth stories in retail” and targets mid to high-single-digit EBIT growth over the next five years, says Hutchinson.

Bath Body Works’ net debt is below $2 billion now, and the company “is highly cash flow generative,” presenting an “opportunity for significant shareholder return,” said the analyst.

At 5.5x FY22 EV/EBITDA, Victoria’s Secret trades at a discount to peers and provides an opportunity to get in at the early stages of the company’s turn-around, says Hutchinson.

Through the last year, Victoria’s Secret has rebuilt its margins, said the analyst.

L Brands’ July 19 investor day will provide insight into Victoria’s Secret’s brand image and marketing overhaul, according to the analyst note.

LB Price Action: L Brands shares were up 3.95% to $76.39 at last check Monday.

Price Target
Posted In: Analyst ColorPrice TargetReiterationAnalyst RatingsBath Body WorksVictoria's Secret
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!