On Wednesday, Morgan Stanley (NYSE:MS) reaffirmed its confidence in Bath & Body Works Inc. (NYSE:BBWI), maintaining an Overweight rating but reducing the price target to $51 from $56. The firm's analysis suggests that the company is poised to achieve mid-single to high-single-digit top-line growth and sustain a long-term EBIT margin of over 20%, aligning with the company's historical performance and management's targets.
Morgan Stanley's outlook highlights several key strengths of Bath & Body Works, including the likelihood of positive earnings per share (EPS) revisions and the opportunity for a potential valuation re-rating. The firm recognizes the company's fundamentally attractive business model and its consistent financial track record as compelling reasons for the positive assessment.
The analyst also noted Bath & Body Works' nimble and domestic supply chain, which contributes to the company's robustness. Additionally, the retailer's focus on highly replenishable and more defensive consumer packaged goods (CPG) categories is seen as a strategic advantage. The company's significant off-mall presence and limited susceptibility to e-commerce disintermediation were also cited as positive factors.
Morgan Stanley believes that Bath & Body Works deserves a mid-teens price-to-earnings (P/E) ratio, which is more in line with peers that share a similar financial profile. This valuation perspective underscores the firm's belief in the company's strong market position and potential for continued financial success.
In other recent news, Bath & Body Works Inc. has seen several financial firms revise their stock price targets in response to weaker than anticipated sales in the second quarter of 2024. Despite a shortfall in revenue, the company reported a modest earnings per share increase that surpassed expectations due to better margins. Analyst firms including Baird, BofA Securities, and JPMorgan (NYSE:JPM) have adjusted their outlooks, reducing their price targets while maintaining their ratings.
Moreover, Bath & Body Works has revised its full-year 2024 sales guidance downward, now projecting a decrease of 4% to 2%, compared to the previous forecast of a 2.5% decrease to flat growth. This update reflects an absence of growth in the second half of the year, contrary to the earlier assumption of a sales upturn during that period.
Additionally, the company has raised its cost optimization savings target to $130 million from $100 million and is set to repurchase $400 million in shares. These recent developments underline Bath & Body Works' efforts to navigate a challenging market while striving for operational efficiency and growth.
InvestingPro Insights
Recent data from InvestingPro provides further context to Morgan Stanley's assessment of Bath & Body Works Inc. (NYSE:BBWI). The company's market capitalization stands at approximately $6.48 billion, and it is trading at a low P/E ratio of 7.14, which suggests that the stock may be undervalued when considering near-term earnings growth. This aligns with Morgan Stanley's view that the company could be due for a valuation re-rating.
InvestingPro Tips highlight that management's aggressive share buybacks and a high shareholder yield are indicative of a strong commitment to returning value to investors. Additionally, while analysts have revised their earnings downwards for the upcoming period, Bath & Body Works has maintained dividend payments for an impressive 52 consecutive years, reinforcing its reputation for financial stability.
For investors seeking more detailed analysis and additional insights, there are over 10 InvestingPro Tips available, which can provide a deeper dive into Bath & Body Works' financial health and market position. Discover more at InvestingPro.
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