Turnaround on Track at Undervalued L Brands
The current discount to our fair value estimate provides investors an attractive entry point to a wide-moat company experiencing an inflection in performance.
Although wide-moat L Brands (LB) is still working out some problems (panties at Victoria’s Secret and seasonal product at Bath & Body Works), performance metrics are trending in the right direction, with go-forward Victoria’s Secret total comparables improving from down 7% in June to up 3% in October and a flat merchandise margin rate for the third quarter.
With these trends and guidance for full-year adjusted earnings per share of $3.05-$3.20 in line with our expectations (we currently model $3.07 for the year), we see little change to our fair value estimate or our belief that top-line growth will average around 3% over the next five years and adjusted operating margin will improve to about 16% (in line with 2016 and above our roughly 14% expectation this year).
We believe that the current discount to our fair value estimate provides shareholders an attractive entry point to a wide-moat company experiencing an inflection in performance.
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Bridget Weishaar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.