Why BofA Is Bullish On Bath & Body Works, Victoria's Secret After L Brands Split

The former L Brands has completed its spin-off of Victoria's Secret & Co VSCO and rebranding as Bath & Body Works Inc. BBWI.

On Wednesday, one analyst said both stocks are now solid investments moving forward.

The Analyst: Bank of America analyst Lorraine Hutchinson reiterated a Buy rating for the post-spin Bath & Body Works and reduced the price target from $93 to $90.

Hutchinson also initiated coverage of Victoria’s Secret with a Buy rating and $75 price target.

Related Link: Why A 'Massive Wave Of Bankruptcies' Could Be Just Around The Corner

The Takeaways: In the new notes, Hutchinson said Victoria’s Secret is an attractively valued potential turnaround story with a healthy balance sheet.

“We view it as a promising retail turnaround and think that inexpensive valuation combined with new categories for growth make it a compelling investment,” she said.

Potential bullish catalysts include revitalizing the core bra business, expansion into swim and sportswear, new brand partnerships, size expansions and new categories, including maternity, shapewear and bridal.

For the remaining Bath & Body Works parent company, Hutchinson said investors now have an opportunity to own one of the best standalone long-term growth stories in the retail sector.

Over the past 10 years, Bath & Body Works has generated compound annual sales and EBIT growth of 10% and 15%, respectively.

In fiscal 2023, the first year not impacted by the pandemic, Hutchinson is projecting 8% sales growth and 15% EPS growth.

"We expect significant FCF generation and think the growth trajectory will be enhanced by an outsized return of capital program, including a $1bn annual buyback and a 1% dividend."

Benzinga’s Take: It’s a very odd time to own retail stocks given the 2020 lockdowns and the noise surrounding reopenings and stimulus payments in the first half of 2021.

Bath & Body Works and Victoria’s Secret investors may need to wait a few more quarters to let sales trends normalize before they can get a clear picture of which of the stocks may be best-positioned for the long-term.