L Brands Has A 'Path To Value Creation' By Shedding Victoria's Secret, KeyBanc Says

Victoria's Secret parent company L Brands Inc LB has a "path to value creation" by selling its fashion business to better focus on its Bath & Body Works unit, according to KeyBanc Capital Markets.

The Analyst

Edward Yruma upgraded L Brands from Sector Weight to Overweight with a new $25 price target.

The Thesis

L Brands' Bath & Body Works unit has posted comps of at least 5% for eight straight quarters and recently recorded a 9% comp gain during the holiday selling period, Yruma wrote in the note. In fact, Bath & Body Works is among the best-performing retailers within the personal care and home fragrance market and has shown itself to be well insulated from online disruption.

Meanwhile, Victoria's Secret is showing no sign of turning around which Yruma said implies the likelihood of L Brands shedding the unit is "more likely." A standalone Bath & Body Works business would prove to be a "highly attractive asset" given its recent momentum and would see minimal dis-synergies.

L Brands could find a buyer for its struggling business as it still generates $6.7 billion in revenue and remains "one of the most powerful" brands in the world, the analyst said. A "patient" and long-term private buy could be in a better position to oversee a turnaround by leveraging its strengths.

A sale of Victoria's Secret could equate to $4 to $6 per share in value, which Yruma said can be used to both pay down debt at Bath & Body Works and a share buyback program. The deleveraging could be 8% accretive to EPS while a buyback could be 8% accretive.

Price Action

Shares of L Brands were trading higher by 1.3% at $20.43.

Related Links:

Bank Of America Finds L Brands Attractive At Current Levels

L Brands Analyst Day Has Wall Street Playing Wait-And-See On Victoria's Secret Turnaround

Photo credit: Dwight Burdette, via Wikimedia