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Why L Brands Stock Is Soaring This Week

What happened

Shares of personal care and apparel retailer L Brands (NYSE: LB) have surged this week thanks to a string of positive analyst comments. Analysts at Bank of America, Deutsche Bank, and UBS had good things to say about the company's strategy and the overall consumer spending environment. As of 2:50 p.m. EDT on Thursday, shares of L Brands were up about 15.4% week-to-date.

So what

On Tuesday, BofA called L Brands one of its top small- and mid-cap ideas for 2021. The bank is optimistic that the upcoming split into two separate companies, Victoria's Secret and Bath and Body Works, will lead to a richer valuation for the latter. BofA put a price target of $90 on the stock.

Image source: Getty Images.

Deutsche Bank is also positive on the spinoff of Victoria's Secret, reiterating a buy rating on Tuesday and maintaining a price target of $88. The stock currently trades right around $72 after its rally this week.

L Brands' split isn't the only thing getting analysts excited. UBS raised estimates for a wide variety of retail stocks on Wednesday after stronger-than-expected channel checks. UBS analyst Jay Sole expects that earnings beats for many retailers for the second and third quarters will help push the whole sector higher.

Now what

The aim of separating L Brands into two companies is to unlock value that might be trapped by having multiple brands with different growth profiles joined at the hip. The two new companies will each have a simpler story to tell. Bath and Body Works will focus on bath, body, and home fragrances, while Victoria's Secret will go after the lingerie and beauty markets.

Shares of L Brands have been soaring for the past year after bottoming out early in the pandemic. The stock is up nearly 400% in that time, although it's still well below its all-time high. Whether this resurgence is warranted will depend on the how the market values the two companies that emerge from the separation.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Timothy Green owns shares of Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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