MKM Acknowledges Being Late To The L Brands Party, Upgrades Stock

MKM analysts acknowledged being late to recommend L Brands Inc (NYSE: LB) stock as a prior headwind has now eased.

The L Brands Analyst: Roxanne Meyer upgraded L Brands from Neutral to Buy with a price target lifted from $22 to $40.

The L Brands Thesis: MKM's prior neutral-stance on the stock was based on expectations for an unfavorable Victoria's Secret separation amid a difficult retail environment, Meyer wrote in the note. But this stance can no longer be justified after the Victoria's Secret brand showed improved performance and cost-cutting initiatives. Continued momentum should translate to better-than-expected earnings in the back half of 2020 and by default a more favorable valuation.

Meanwhile, Meyer said the Bath & Body Works earned a reputation of being one of the least volatile and high-growth retail concepts. The company operates in an attractive market with minimal direct competitors, notable off-mall exposure, a wide demographic appeal, and a "nimble" supply chain.

Encouragingly, Bath & Body Works is testing a loyalty program at more than 25% of its stores and this serves as a potential catalyst for the stock that isn't factored into current estimates.

The research firm's revised $40 price target is based on 14 times fiscal 2021 EPS estimate of $2.83 that is "well above" the Street's estimate of $2.18 per share.

LB Price Action: Shares of L Brands were trading higher by 4% at $30.79.

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