DJ Buy L Brands Stock Because Victoria's Secret Is Likely to Be Shed, Analyst Says -- Barrons.com

By Ben Walsh

L Brands stock had a pretty wretched 2019, but Key Banc Capital Markets analyst Edward Yruma thinks that poor run will help the Victoria's Secret owner. He upgraded the stock to Overweight from Sector Weight, because as he wrote in a note to clients Monday, "the worse [the] comps get, the better [it is for] the stock."

L Brands (ticker: LB) was up 1.8% to $20.53 near midday Tuesday. The stock is down 25% over the past 12 months, compared with the S&P 500's 26% gain over the same period.

Crucially, Yruma thinks that, while the company's Victoria's Secret brand has been struggling, its other main asset, Bath & Body Works, is a "highly attractive asset" on a stand-alone basis.

"We believe that the stark differential in performance between Victoria's Secret and Bath & Body Works, and lack of any discernible turnaround at VS, makes a value creating transaction more likely."

Bath & Body Works "has posted 5% + comps for eight consecutive quarters and the +9% holiday comp points to the strength within the business," he wrote. "We believe that the business is one of the best in the personal care/home fragrance market and importantly has not seen the level of digital disruption...that we have observed in other areas of specialty retail."

The "path to value creation," as Yruma describes it, is for L Brands to spin out its Victoria's Secret business, which he estimates would deliver between $4 and $6 a share in value. That would leave Bath & Body Works as effectively an independent company and allow it to pay down debt and buy back shares.

Yruma thinks that something akin to this strategy is likely and that the stock could hit $25 a share from its current level around $20, if it were pursued.

Write to Ben Walsh at ben.walsh@barrons.com

(END) Dow Jones Newswires

January 21, 2020 12:39 ET (17:39 GMT)

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