L Brands Has Value Without Victoria's Secret Deal, BMO Says In Upgrade

Shares of L Brands Inc LB Monday tumbled in after-hours trading on news of Sycamore Partners LLC terminating its agreement to acquire a majority stake in Victoria’s Secret.

Once the noise related to the deal dies down, the focus will be on the company’s underlying fundamental value, according to BMO Capital Markets.

The L Brands Analyst

Simeon Siegel upgraded the rating for L Brands from Market Perform to Outperform with a $17 price target.

The L Brands Thesis

Although Victoria’s Secret generates massive revenue for L Brands, the troubled lingerie brand is likely losing money, Siegel said in the Tuesday upgrade note. (See his track record here.)

The COVID-19 crisis has led to a revenue decline at Victoria’s Secret, which may be a positive, giving management “a very unique opportunity to re-evaluate all aspects of the brand,” the analyst said. This may help the brand become smaller, yet healthier, he said.

L Brands seems to be preparing Victoria’s Secret to operate as a standalone entity, and the brand is likely to carry positive value, Siegel said.

Referring to Bath & Body Works, the analyst said that there is no reason to expect sales growth to taper off after the COVID-19 crisis is over. Even assuming lower margins than the 20% range still suggests an acceleration in sales growth from current levels, he said.