Goldman Sachs Out Bullish On L Brands, Takes Neutral Stance On Gap

Goldman Sachs initiated coverage of two retail brands this week. 

The Analyst 

Goldman Sachs analyst Alexandra Walvis initiated coverage of L Brands Inc LB with a Buy rating and $36 price target.

The analyst also initiated coverage of Gap Inc GPS with a Neutral rating and $28 price target.

The Thesis

The woes of L Brands and Victoria’s Secret are well-known, but recent announcements that Henri Bendel would be closed and strategic options would be pursued for La Senza could drive near-term upside, Walvis said in a Thursday initiation note. (See the analyst's track record here.) 

The announcements are evidence that the company is increasingly focused on shareholder value, “which we welcome as an encouraging pivot,” Walvis said. 

Goldman expects Victoria’s Secret to continue to lose share due to challenges with brand messaging, product perception and competition.

A bright spot at L Brands is Bath & Body Works, and Walvis said the brand will be a key driver of EPS upside moving forward.

“We forecast strong growth and consistently high margins for this brand as the banner benefits from a dominant position in an attractive category and ongoing store remodels." 

At Gap, Walvis said she's constructive on tailwinds from the brand's pivot toward higher growth, higher-margin value formats, expansion of omnichannel and a stronger consumer environment, but intense private label and online apparel competition remain a key risk.

“While we believe near-term challenges at the Gap brand are well-understood, we expect near-term volatility in specialty trends to outweigh optimism on longer-term strategic initiatives,” the analyst said. 

Gap's shift to value is positive long-term, but near-term execution remains a risk, leading to Goldman's Neutral rating, she said. 

The Price Action

L Brands shares were trading near-flat at $30.59 at the time of publication Friday. Gap shares were trading 1.8 percent higher at $27.09. 

Related Links:

L Brands Loses 14% On Dull Showing From Victoria's Secret

Gap Hits 52-Week Low After JPMorgan Downgrade

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