L Brands rises after Baird analyst sees Victoria's Secret 'turning a corner'
Shares of L Brands (LB) are up after a Baird analyst upgraded the stock and raised his price target on the stock, saying Victoria's Secret is "turning a corner" under new leadership. ANALYST UPGRADE: Baird analyst Mark Altschwager upgraded L Brands to Outperform from Neutral, saying Victoria's Secret is turning around under new management. In a note to clients, Altschwager said he believes the company is on track to meet or exceed December comps and fourth quarter expectations amid healthy consumer traffic, consistent product momentum at Bath & Body Works and updated Victoria's Secret fashion. Altschwager believes Q4 marks an inflection point as the business returns to EBIT growth following a nearly two-year transition period. Additionally, he said promotional headwinds have alleviated and he expects average unit retail pressure to moderate as Victoria's Secret shifts toward constructed bras and buying and occupancy deleverage to reduce as L Brands returns to top-line growth. The analyst said the company appears to be positioned for significant earnings per share growth acceleration in 2018. He expects shares to trade at a premium when the company generates positive comps and margin expansion, suggesting valuation upside potential. Altschwager raised his price target to $70 from $60 on L Brands shares. NOVEMBER SAME-STORE SALES: On November 30, L Brands reported net sales of $1.27B for the four weeks ended November 25, an increase of 2%, compared to net sales of $1.2B for the four weeks ended Nov. 26, 2016. Same-store sales decreased 1% for the four week period and the exit of the swim and apparel categories had a negative impact of about one percentage point for both total company and Victoria's Secret comparable sales. RECENT EARNINGS AND GUIDANCE: On November 11, L Brands reported in line third quarter earnings per share, though its revenue of $2.62B slightly beat analyst expectations. The company also reported Q3 SSS down 1%, store-only SSS down 3%, and Victoria's Secret SSS down 4%. The company forecast Q4 EPS of $1.95-$2.10 and FY17 EPS of $3.05-$3.20, compared to the current consensus of $2.04 and $3.14, respectively. L Brands also predicted Q4 total SSS flat to up low single digits and Q4 SSS ex-Victoria's Secret swim and apparel flat to up low single digits. The company also estimated FY17 SSS down low to mid single digits and FY17 SSS excluding Victoria's Secret swim and apparel about flat. PRICE ACTION: L Brands rose 1.5%, or 88c, to $61.10 in morning trading.