Victoria's Secret Analyst Bullish As Buyback Rally Continues

After a 12% rally on Wednesday, Victoria's Secret & Co VSCO shares gained another 3% on Thursday morning after the company announced a major share buyback and said holiday-quarter sales have been strong.

Following this week’s positive headlines, one Victoria’s Secret analyst said the new share buyback agreement should continue to drive value for investors.

The Analyst: Bank of America analyst Lorraine Hutchinson reiterated her Buy rating and $85 price target for Victoria's Secret.

Related Link: Is The Santa Claus Stock Market Rally Real? Here Are The Numbers

The Thesis: On Wednesday, Victoria’s Secret announced it will be buying about 4.1 million shares of stock from Goldman Sachs Group Inc GS on Dec. 31. In addition, the company reiterated its fourth-quarter guidance of between zero and 3% sales growth and EPS of between $2.35 and $2.65.

In her new note, Hutchinson said the combination of buybacks and strong execution will be bullish for the stock.

“We model $400mn in share repurchases in F22 but the 4Q start was a positive surprise,” she said.

Victoria’s Secret said sales growth over Thanksgiving weekend and the weekend before Christmas was strong. Hutchinson stated that the strength was broad-based across all the company’s businesses but noted that the store's channel was particularly impressive. Finally, Hutchinson said Victoria’s Secret inventory levels are healthy ahead of the company’s upcoming semi-annual sale.

Bank of America is projecting $735 million in free cash flow for Victoria’s Secret in fiscal 2022. Hutchinson is also modeling $7 in 2022 EPS and $7.74 in 2023 EPS.

Benzinga’s Take: Solid fourth-quarter sales numbers and a faster-than-expected start to buybacks provided Victoria’s Secret investors with a nice holiday gift this week. The stock is now up 17.5% in just five days, but the reaction to the updated guidance isn’t as extreme as it may seem at first glance given shares are still up just 1.1% overall in the past month.

Photo: Haley Bieber in Victoria's Secret courtesy VS