L Brands (Ticker Symbol: LB) released a solid earnings report Wednesday after the close, led by strong sales in its Bath and Body Works stores. The owner of Victoria’s Secret and Bath and Body Works reported an earnings per share beat of .14 cents vs. Wall Street analysts expectations of break-even. Revenue reported was also a beat coming in at $2.63 billion vs. Wall Street analysts expectations of $2.56 billion. Same-store sales were also solid and came in flat vs. expectations of down 1.3%.
L Brands has been trying to increase performance at its Victoria’s Secret locations. Victoria’s Secret is known for its luxury bras, panties, and lingerie. Recently, the company has been losing market share to companies like Lively, ThirdLove and Adore Me. Consumers are flocking more toward Victoria’s Secrets competitors due to their more “comfortable” undergarments and diverse range of styles for different body types.
Above is the long-term chart for L brands stock. The company spent most of the late ’90s and all of the 2000s in an 11-year-long trading range between the $10.00 and $30.00 dollar price levels. L Brands’ stock finally broke out of that range in the first quarter of 2011. The stock proceeded to go on a tear rallying over 200% over the next 5 years. The stock traded to an all-time high of $101.11 on November 4th, 2015.
In that same quarter, the stock topped, forming a bearish divergence pattern (as indicated on the chart below) where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal as occurred in L Brands case. Unfortunately, L Brands’ stock took a turn for the worse and proceeded to grind lower. After a brief rally in the 3rd and 4th quarter of 2017, the stock found some resistance at its 100-week Moving Average and in late 2017 it continued to head lower. Currently, the stock is trading below all of its major moving averages and is down 4% since the start of the year.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 16 analysts offering 12-month price targets, the average price target for L Brands’ stock is $28.87. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $24.58.
In 2016 Victoria’s Secret pulled out of the swimwear business. It was a devastating move and the company lost more than $500 million in annual sales. This year the company announced that it is getting back into the swimwear business in one of its recent moves to improve company performance. Investors in the space should look to competitor Gap Brands earnings report on May 30th for fresh news within the sector.