Buckingham Research downgraded shares of L Brands Inc
(NYSE: LB) from Buy to Neutral and lowered its price target from
$43 to $40, with the revised target representing roughly 9-percent downside from current levels.
The rationale for the action? The firm said its near-term concern is based on its view that Victoria's
Secret is struggling to gain traction with newness in core lingerie, pressuring ASPs and merchandise missteps causing
incremental margin pressure at Bath & Body Works.
Analyst's Perspective
Analyst Kelly Halsor believes margin recovery opportunity at L
Brands is facing several roadblocks this fall, resulting in incremental pricing investments and promotional activity both at VS and
BBW.
See also: Victoria's
Secret Issues Are 'Self-Inflicted,' But L Brands Can Bounce Back
As such, Halsor said the consensus earnings per share estimates for the fourth quarter as well as for fiscal-year 2017 are too
high. The analyst noted that investors had bid up the stock
by 22 percent since Aug. 30, despite indications that trends are trending below plan in the third quarter.
Buckingham Research pointed out that its concerns are primarily related to the fourth quarter, which fetches the company 50
percent of its annual EBIT. However, the firm said it is optimistic about the ability of the company's supply chain to address the
issues in the first half of 2018 when comparisons are favorable.
"As such, we believe the margin recovery opportunity in FY18 and attractive 5.4% dividend limits the ultimate downside to
shares," the firm said (see Halsor's track record here).
"We view the current risk/reward as balanced (20% downside/20% upside)."
The firm also listed some key upcoming catalysts to focus on:
- October sales and update on third-quarter guidance, both due on Nov. 2.
- Investor meeting at the company's headquarters scheduled for Nov. 2.
- Q3 results and update on fourth-quarter guidance, due on Nov. 1.
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Image Credit: By m01229 from USA - Bath & Body Works - Ballston Common Mall, CC BY 2.0, via Wikimedia Commons
Latest Ratings for LB
Date |
Firm |
Action |
From |
To |
Oct 2017 |
Buckingham |
Downgrades |
Buy |
Neutral |
Sep 2017 |
Atlantic Equities |
Upgrades |
Neutral |
Overweight |
Sep 2017 |
Cowen & Co. |
Downgrades |
Outperform |
Market Perform |
View More Analyst Ratings for
LB
View the Latest Analyst Ratings
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