Is The Market Pricing L Brands Fairly?

LB: La Barge logo
LB
La Barge

L Brands (NYSE: LB) engages in the retail business of women’s intimate and other apparel, personal care, and beauty categories. During the latest quarter, net sales of the company rose to $2.77 billion, compared with $2.61 billion a year ago, up 6% from the prior-year quarter, with adjusted earnings per share at $0.30. This was driven by growth across its Bath and Body Works segment, a well-positioned customer strategy, international diversification, and rising online sales. Store only comparable sales had also increased 4% year over year.  Even though the BBW segment continues to perform well, the results have been slightly disappointing for Victoria’s Secret. On the other hand,  VS Stores still continue to be the most important segment for the company as it derives close to 50% of its revenues from this segment and it is striving to get it back on track.

We anticipate the company to post progressive results as the management remains focused on the strategic initiatives to create long-term shareholder value by balancing top-line growth and strong margins. Looking ahead, the company remains inclined toward improving performance in the Victoria’s Secret business, staying close to its customer, improving the customer experience in stores and online, and improving assortments in compelling new product launches with steadier footing in the remainder of FY2018.
We thus expect the company’s revenue to be around $13 billion for FY2018 and the net income margin to be 7%. We assume a Price-to-Earnings multiple of 12.6x and an average share count of 287 million, translating into a share price estimate of $40 per share, a tad up from the current market price.
  

Detailed steps to arrive at our price estimate are outlined in our interactive dashboard Is L Brands Inc. Fairly PricedYou can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.

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