Victoria’s Secret stock (VSCO) is poised to look much sexier over the next 12 months, says closely followed JPMorgan retail analyst Matt Boss.
Boss reiterated his Overweight (buy equivalent) rating and $100 price target on Victoria’s Secret on Wednesday after a host of positive news from the intimate apparel retailer sent its stock higher by 11% to $53.
First, the company revealed a new $250 million stock buyback plan. The plan is the first buyback for Victoria’s Secret since being spun-off from L Brands earlier this year. Boss thinks the buyback could materially boost Victoria’s Secret earnings per share and by extension, its stock price.
“By our math, every 1 million shares of common stock repurchased equates to $0.04 earnings per share power, with the initial delivery of 4.1 million shares driving $0.15 of 2022 earnings per share accretion,” contends Boss.
Meanwhile, the top line trajectory of the business looks to be further supportive of a bull stance on the stock by the likes of Boss.
Victoria’s Secret reiterated its holiday quarter sales and earnings outlook as well on Wednesday.
A shopper passes by a Victoria’s Secret retail store, as the global outbreak of the coronavirus disease (COVID-19) continues, in Brooklyn, New York, U.S., December 8, 2020. REUTERS/Brendan McDermid
“I am very pleased with our fourth quarter performance to date and believe we have solid plans in place for the balance of this holiday selling season. I was particularly encouraged by our sales growth during the peak shopping days over the Thanksgiving weekend and the large rush of business as we approached December 25th. Our stores are in a good inventory position as we begin our semi-annual sale and anniversary the positive stimulus impact on sales in January of last year. Performance has been broad-based across all of our businesses, and our stores channel has been a position of strength for our results. The teams have executed well and focused on what we can control in this challenging supply chain environment, and I could not be more proud of our efforts,” said Victoria’s Secret CEO Martin Waters.
Boss adds that the company’s market share position, cost savings and valuation make the stock compelling at current trading levels.
“We view Victoria’s Secret as trading at a compelling entry price point (trading at sub-3x our FY23 EBITDA estimate vs. ~6x Specialty Retail average) given the company’s status as the leading market share player in U.S. lingerie (~20% share) and women’s mass fragrance (~30% share) categories, with structural cost reductions and ~$785 million of FY22E/FY23E free cash flow potential equating to a mid-teens free cash flow yield,” says Boss.