Analysts Raise Target Price on L Brands After Fashion Retailer Upgrades Outlook; Has Over 30% Upside Potential

Analysts have hiked price targets on L Brands after the fashion retailer raised its first-quarter profit forecast, announced the repayment of over $1 billion in debt, and reinstated a $0.60 annual dividend, which helped shares gain as much as 11% post the announcement.

Columbus, Ohio-based company raised its first-quarter adjusted earnings per share (EPS) outlook to $0.55-$0.65, up from the previous month’s forecast of $0.35-$0.45.

The specialty retailer, which focuses on women’s intimate and other apparel, personal care, beauty, and home fragrance products via its Victoria’s Secret and Bath & Body Works segments, said it reinstated annual dividends at $0.60 per shares share and unveils a new $500 million share buyback plan. L Brands also said it will repay $1.035 billion of debt through bond recalls.

L Brands shares, which surged over 105% in 2020, rose more than 60% so far this year. The stock rose over 11% in the last three trading days.

Analyst Comments

“Victoria’s Secret’s turnaround and ongoing Bath & Body Works momentum were once again on display as management updates 1Q guidance on the back of its 10b5-1 filing. Share repo’s present further EPS upside opportunity to our above-consensus 2021 view,” noted Kimberly C Greenberger, equity analyst at Morgan Stanley.

“Management raises 1Q21 EPS guidance on strong QTD revenue & gross margin trends; increasing our 1Q21 EPS to 65c, 2021 EPS to $4.67, and price target to $68.”

L Brands Stock Price Forecast

Eighteen analysts who offered stock ratings for L Brands in the last three months forecast the average price in 12 months of $66.89 with a high forecast of $83.00 and a low forecast of $48.00.

The average price target represents a 9.75% increase from the last price of $60.95. Of those 18 analysts, nine rated “Buy”, nine rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $68 with a high of $89 under a bull scenario and $31 under the worst-case scenario. The firm gave an “Overweight” rating on the specialty retailer’s stock.

Several other analysts have also updated their stock outlook. Citigroup raised the stock price forecast to $62 from $58. BofA upped the price objective to $75 from $70. BMO increased the target price to $81 from $64. Telsey Advisory Group raised the price target to $65 from $54. Barclays upped the price target to $66 from $61.

Moreover, Deutsche Bank increased their target price to $78 from $77. Bernstein raised the price target to $60 from $53. RBC upped the price target to $63 from $55. Keybanc increased the target price to $70 from $64. B. Riley raised the target price to $67 from $60. At last, Credit Suisse upgraded the stock price forecast to $64 from $57.

“We continue to see a strong strategic rationale for a VS/BBW separation targeted for Aug ’21. 2H20 results & the 1Q21 guidance update confirm 1) VS is hitting an inflection point in its long-debated turnaround, and 2) BBW is showing no signs of topline deceleration & could deliver higher profitability vs. historical levels,” Morgan Stanley’s Greenberger added.

“This leaves us incrementally confident in VS’ turnaround & profitability trajectory (e.g., 10-15% OM) as well as BBW’s revenue growth sustainability & OM expansion opportunity (e.g., low-to-mid-20s %). BBW remains a stand-out across the retail space. 2H20 results suggest higher future profitability (+low-mid-20s %). It would be a successful standalone public company.”

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