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L Brands Is Finally Rebounding

L&F Capital Management profile picture
L&F Capital Management


  • LB reported very strong October sales numbers.
  • The stock is now up 30% off its August lows.
  • We see upside to $60 as the growth narrative rebounds and the valuation normalizes.

L Brands' (LB) stock is rallying today after the company reported far better than expected October sales results and reiterated earnings guidance that many market-watchers thought was at risk of being cut. The results underscore the thesis that Bath & Body Works' (or BBW) demand remains strong, Victoria's Secret's (or VS) demand is inflecting upward, and LB stock is in rebound mode. The stock is now up 30% since its August lows, and we believe this run can continue higher. We think LB stock should trade above $60.

ChartLB data by YCharts

Comparable sales growth has turned positive earlier than we and most expected. We were expecting comparable sales growth to turn positive in December as LB started facing negative laps; but LB reported 2% comparable sales growth in October against a positive lap (up 1% last October).

Moreover, VS turned in a positive comp month. Comps at VS were positive for the first time since November 2016, and the lap wasn't that easy (down 2% last October). Meanwhile, BBW continued its trend of a mid-single-digit rise in comps.

All of this is exceptionally bullish for LB. Operations are stabilizing and inflecting upward sooner than most expected. If the company can comp positive against a positive lap, then LB is looking at hugely positive comps in 2018 when the lap is hugely negative. Psychologically, this will be huge. Investors like buying into stories with positive comps. Better yet, investors really like buying into stories with hugely positive comps.

As far as the stock is concerned, LB remains fundamentally undervalued. The trailing P/E multiple has fallen to 14x when it has historically traded around 20x. Yet, long-term earnings growth estimates haven't come down that much (~11% to ~10%) because the company operates two retail destinations with secular appeal.

Because the

This article was written by

L&F Capital Management profile picture
L&F Capital Management, LLC, is a quantitative investment management group located in San Diego, California. Our multi-strategy investment approach comprises a mix of event-driven trades and long-term value investments, utilized together to maximize profit in both short and long term scenarios. We maintain consistency in portfolio mix through our long-term value holdings, but stress flexibility in portfolio mix from our daily event-driven trades. We believe this mix of flexibility and value generates both short and long term profits while reducing exposure to market volatility. L&F also shares various trade and investment opportunities through Seeking Alpha. For more information, visit www.lfcapitalmanagement.com.

Analyst’s Disclosure: I am/we are long LB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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