L Brands Bears ‘May Not Be Bearish Enough,’ Jefferies Warns

(Bloomberg) -- Victoria’s Secret parent L Brands Inc. plunged as much as 9.5% Friday after Credit Suisse’s Michael Binetti joined just three other analysts in the bearish camp. The company has eight buy ratings, 16 holds, and 4 sells, according to Bloomberg data.

Binetti’s new 12-month price target of $14 matched the Street-low held by Jefferies analyst Randal Konik, who warned that the bears still “may not be bearish enough.”

Konik, who has had an underperform rating on the stock since Nov. 2016, is calling for a 25% decline in L Brands earnings next year. This compares to Credit Suisse’s estimated decline of about 5%, and the Street consensus, as compiled by Bloomberg data, of fiscal 2021 earnings per share growth of nearly 2%.

Actual numbers for fiscal 2021, which ends in January of that year, range between $2.12 to $2.89, for an average of $2.50; this compares to this year’s estimate of $2.46.

Konik believes that Victoria’s Secret and Pink are “collapsing” and that Bath & Body Works is “about to turn negative,” according to a note. Victoria’s Secret will lose money next year, he predicts, and Pink sales are likely to get “cut in half within the next two years. The analyst also expects that Bath & Body Works will “soon” post negative comparable sales and see margin erosion.

Binetti told clients earlier that there is risk to L Brands’ second half, as the management’s forecast “relies heavily on new VS product working.” He is doubtful that new product and marketing can “pivot” Victoria’s Secret trends quickly, given an “increasingly tough U.S. macro,” as well as a “big new marketing pushes from competitors like the Savage x Fenty show on Amazon in September.”

Binetti downgraded his rating on the stock to underperform from neutral. He believes shares can “still trade lower” until the company can show “more concrete signs of progress” at the VS business in the near-term.

Meanwhile, Konik’s words are a bit more harsh. The analyst said, “VS is no longer a concept that is coveted by consumers” and warned clients, “just get out of this stock.”

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Janet Freund

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