Limited Brands to Outperform - Analyst Blog

We recently upgraded our recommendation on Limited Brands Inc. (LTD), a specialty retailer of women's intimate and other apparel, to Outperform with the price target of $35.00. Earlier, we had a 'Neutral recommendation on the stock.

Limited Brands' sustained focus on cost containment, inventory management, and merchandise initiatives has kept it afloat in a sluggish retail environment as evident from its healthy third-quarter 2010 results. Consequently, management raised its fiscal 2010 earnings outlook.

Limited Brands, which competes with Gap Inc. (GPS) and Hanesbrands Inc. (HBI), now expects fiscal 2010 earnings between $1.82 and $1.97 per share up from $1.68 and $1.83 previously anticipated. The company projected fourth-quarter 2010 earnings between $1.02 and $1.17.

Limited Brands' Bath & Body Works segment is gaining traction, driven by a rise in store transactions, enhancement in the direct channel business and growth in new stores. Victoria's Secret Stores have been performing well, and the company is also revamping its La Senza brand both in Canada and internationally by improving product assortments, store operations and layout.

Limited Brands is keen to enhance its retail footprint across the globe by expanding aggressively in Canada and other international markets. Moreover, the company is actively managing its cash flows and expects to generate free cash flow of $800 million during fiscal 2010.

The company is also returning much of its free cash via dividends and share repurchase. Limited Brands, which currently operates 2,988 stores, announced a special dividend of $3 per share payable on December 21, 2010 for shareholders of record as on December 7, 2010. The company's board also authorized a share repurchase program of $200 million, which includes $53 million under its previous $200 million authorization.

Given the positive note in the company's future prospects, we prefer to have an 'Outperform' rating on the stock. Moreover, Limited Brands holds a Zacks #1 Rank, which translates into a short-term ‘Strong Buy' rating and correlates with our long-term recommendation.

 
GAP INC (GPS): Free Stock Analysis Report
 
HANESBRANDS INC (HBI): Free Stock Analysis Report
 
LIMITED INC (LTD): Free Stock Analysis Report
 
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