These Stock Are Likely To Offer Better Returns Over Bath & Body Works’ Stock
We believe that Cincinnati Financial Corporation stock (NASDAQ: CINF) and Bio-Rad Laboratories stock (NYSE: BIO) are currently better valued than Bath & Body Works stock (NYSE: BBWI). Bath & Body Works current price-to-operating income ratio of 9x is higher than levels of 6x for CINF and 3x for BIO. But does this gap in valuation make sense? We don’t think so, especially if we look at the fundamentals. More specifically, we arrive at our conclusion by looking at historical trends in revenues and operating income for these companies. Our dashboard Better Bet Than BBWI: Pay Less To Get More From CINF, BIO has more details – parts of which are summarized below.
1. Revenue Growth
Bath & Body Work’s Revenue declined at an average rate of 2% over the last three years (includes results from Victoria’s Secret as well) as compared to Bio-Rad Lab’s Revenue growth of 6% and Cincinnati Financial Corp. Revenue growth of 12%. And, if we look at the revenue growth over the last twelve-month period – BBWI’s 25% revenue growth is similar to BIO’s and worse than 29% growth for CINF’s revenues.
- Bath & Body Works, the largest specialty home fragrance & body care product retailer in the U.S, formerly known as L Brands, spun off Victoria’s Secret (NYSE: VSCO) into a stand-alone, separately traded company, and then changed its name to Bath & Body Works on August 3, 2021. The company posted its first earnings report without any results included from Victoria’s Secret business. During this Q3, BBWI’s sales were up 53% and EPS rose 360% from the pre-pandemic level in 2019.
- Cincinnati Financial Corporation markets commercial lines property casualty insurance, personal lines property casualty insurance, Life insurance, and investments through insurance agencies. It is a holding company managing its business through its subsidiaries. CINF posted mediocre third-quarter results that did not impress the market, but its core business remains healthy and growing. With a total debt of a paltry $904 million, a market cap of $19 billion, and a top credit rating, CINF is likely to weather any storms that new Covid variants may present.
- Bio-Rad Laboratories manufactures and supplies life science research, healthcare, analytical chemistry, and other markets with products and systems. The company’s clinical diagnostics business, which sells laboratory devices and instruments, contributes about 50% of its revenue. Its life sciences arm develops many gene, blood, and cell tests, making up the other 50%. In the recent Q3, the company saw revenue growth of 15% y-o-y to $747 million.
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2. Operating Income Growth
BBWI’s operating income growth also compares favorably when compared to CINF and BIO in the last three years period. Better revenue growth for the former led to higher operating income. However, BBWI’s operating income growth in the last twelve months was higher than the other two companies.
The Net of It All
Cincinnati Financial and Bio-Rad have seen higher growth in revenues and operating income than Bath & Body Works in the last three years. Yet, both of them have a comparatively lower price-to-operating income ratio when compared to BBWI. This underperformance in Bath & Body Works revenue and operating income growth compared to CINF and BIO reinforces our conclusion that BBWI stock is expensive compared to these two. We think this gap in valuation will eventually narrow over time to favor the less expensive names.
Also, Bath & Body Works Peer Comparisons summarizes how the company fares against peers on metrics that matter.
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|S&P 500 Return||1%||26%||111%|
|Trefis MS Portfolio Return||0%||45%||288%|
 Month-to-date and year-to-date as of 12/16/2021
 Cumulative total returns since 2017