L Brands Upgraded at J.P. Morgan on Renewed Separation Plan

L Brands shares rose after the company renewed its plan to separate Victoria’s Secret and Bath & Body Works into independent companies.
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L Brands  (LB) - Get Report shares jumped on Wednesday as J.P. Morgan analyst Matthew Boss upgraded the company to overweight from neutral. 

The analyst moved after the fashion icon said it would return to its plan to separate Victoria’s Secret and Bath & Body Works into independent companies.

Boss has a $32 target for L Brands stock. It recently traded at $25.66, up 34%, hitting an almost one-year high earlier Wednesday. The stock is up 41% year to date.

Bath & Body Works would likely enjoy “a sustainable double-digit stand-alone bottom-line growth profile,” he said in a commentary cited by Bloomberg.

The Bath & Body Works division represents the “best current [comparison] story” in brick-and-mortar retail, Boss said. 

He predicts merchandise margins should expand 2 percentage points for the second quarter, the first quarterly widening since 2017. And he expects free cash flow of $1.1 billion for each of the next two years.

L Brands said Tuesday that second-quarter sales are expected to show a 20% drop from a year earlier, including an increase of roughly 10% at Bath & Body Works and a 40% decline at Victoria’s Secret. It said most retail stores in North America are now open.

The second-quarter numbers were “significantly better than expected” at both chains, said MKM analyst Roxanne Meyer, according to Bloomberg.

Bath & Body Works stands “among the strongest in the retail sector as it benefits from the strength of its categories in a covid environment,” she wrote.

Meyer raised her share price target to $22 from $11 and maintained her neutral rating.