Shares of L Brands (LB) jumped in morning trading after the Bath & Body Works and Victoria's Secret parent was upgraded to Buy based on inexpensive valuation, a high dividend yield and growth at Bath & Body Works.
COMPELLING INVESTMENT: BofA analyst Lorraine Hutchinson upgraded L Brands to Buy from Neutral with a price target of $25, up from $21. In a research note to investors, Hutchinson said she thinks L Brands' inexpensive valuation, a high dividend yield, a strong and growing Bath & Body Works business and the potential for stabilization at Victoria's Secret make it a compelling investment.
OPERATING UNITS:
POTENTIAL OPTIONS TO CREATE VALUE: The BofA analyst also contended that the divergent performance of its two concepts suggests a spinoff could present an opportunity to create value, especially given the low level of synergies between the two businesses.
Hutchinson also presented other options to create value, including shaking up the management team, which she would view as positive, as it would "bring a much needed fresh perspective to the struggling Victoria's Secret brand." Additionally, she said Victoria's Secret could add to earnings by adding back private label swim at both Victoria's Secret and Pink, change the brand image and marketing message at Victoria's Secret to be more inclusive, overhaul the fleet, diversify the board or close owned international markets.
NOTABLE: In late November, The Deal reported, citing sources familiar with the situation, that L Brands was meeting with investment banks about potentially exploring strategic alternatives.
PRICE ACTION: In morning trading, shares of L Brands are up nearly 6% to $18.45.
L Brands
+1.17 (+6.69%)