Why Bank Of America Analysts Are Bullish On L Brands

L Brands Inc LB and soon-to-be spun off Victoria’s Secret have Bank of America analysts bullish.

The L Brands Analyst: Lorraine Hutchinson, CFA, reiterated the firm’s Buy rating of L Brands and $90 price target.

The L Brands Takeaways: L Brands intends to spin-off Victoria’s Secret on Aug. 2, giving L Brands shareholders three shares of Victoria’s Secret for each share of L Brands, said Hutchinson.

Following the spin-off, L Brands will begin trading under Bath Body Works, Inc. BBWI. Victoria’s Secret, Inc. VSCO will begin trading as well, according to an L Brands press release from July 9.

Based on L Brand’s Friday closing price of $73.50, the analyst estimates Bath Body Works trades at 9.5x FY22 EV/EBITDA and Victoria’s Secret trades at 5.5x FY22 EV/EBITDA.

A 9.5x FY22 EV/EBITDA multiple is particularly low considering Bath Body Works has “one of the most consistent growth stories in retail” and targets mid to high-single-digit EBIT growth over the next five years, says Hutchinson.

Bath Body Works’ net debt is below $2 billion now, and the company “is highly cash flow generative,” presenting an “opportunity for significant shareholder return,” said the analyst.

At 5.5x FY22 EV/EBITDA, Victoria’s Secret trades at a discount to peers and provides an opportunity to get in at the early stages of the company’s turn-around, says Hutchinson.

Through the last year, Victoria’s Secret has rebuilt its margins, said the analyst.

L Brands’ July 19 investor day will provide insight into Victoria’s Secret’s brand image and marketing overhaul, according to the analyst note.

LB Price Action: L Brands shares were up 3.95% to $76.39 at last check Monday.