Piper Jaffray Reiterates Overweight Rating on Limited Brands (LTD)

Piper Jaffray is out with a research report this morning, where it reiterates its Overweight rating on Limited Brands Inc. LTD; it has a $30.00 price target on the stock. The PJ analysts said, “Following our meeting with Stuart Burgdoerfer, CFO of Limited Brands, we are incrementally confident in the company's ability to meet or exceed our FQ2 EPS estimate of $0.35 (consensus: $0.34) and FY11 EPS estimate of $1.85 (consensus: $1.79). It appears that sourcing has not been a headwind in FY11, and the company's strategies of shortening promotions and tightly managing inventories are benefiting gross margin. We remain positive on LTD shares, and view them as an attractive large-cap alternative to URBN and BBBY, both of which trade at a higher P/E based on FY12 estimates.” They added, “With a strong brand and differentiated merchandise, Victoria's Secret remains the undisputed specialty retail leader in the intimates category and has proven its ability to fend off challengers. The extensive design work that goes into creating and redefining bra fits creates a substantial barrier to entry for the intimate apparel category, even as the broader specialty apparel market remains relatively open to new entrants. Furthermore, the emergence of PINK as a viable sub-brand provides an obstacle to competitors attempting to carve out a niche targeting a younger customer.” They further noted, “Management believes that in a normal state of the economy, it needs $600 to $800 million in cash at the beginning of the fiscal year to comfortably run the business and fund its working capital needs, which compares to $1.8 billion entering FY11 and $1.2 billion entering FQ2. Granted, today does not reflect a normal state of the economy, however given the stability in LTD's business as well as a substantial cushion relative to the $600 to $800 million level, we believe the company may be in a position to return more cash to shareholders in the next year. Furthermore, we remind investors that its current dividend yield of 2.5% provides a nice cushion in a volatile market.”