Can Victoria's Secret Run Higher on Rising Earnings Estimates?

Investors might want to bet on Victoria's Secret VSCO, as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The upward trend in estimate revisions for this retailer of lingerie, pajamas and beauty products reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Victoria's Secret, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

Current-Quarter Estimate Revisions

The earnings estimate of $0.38 per share for the current quarter represents a change of +58.33% from the number reported a year ago.

The Zacks Consensus Estimate for Victoria's Secret has increased 7.07% over the last 30 days, as six estimates have gone higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $1.97 per share represents a change of -13.22% from the year-ago number.

The revisions trend for the current year also appears quite promising for Victoria's Secret, with six estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 14.76%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Victoria's Secret currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Victoria's Secret because of its solid estimate revisions, as evident from the stock's 33.6% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.

To read this article on Zacks.com click here.

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