By Sam Boughedda
A UBS analyst said the firm believes the gains made by Bath & Body Works Inc. (NYSE:BBWI) during the pandemic are much more sustainable than the Street thinks, and they see favorable upside to the stock.
The analyst has a Buy rating and a $46 price target on the stock. He told investors they see a 26% upside to their price target, and the gains made and sustained from the pandemic "should result in better sales and margins than the market expects over time."
"We think upside earnings surprises will also ultimately lead to P/E expansion as the market begins to see BBWI having better long-term growth prospects than currently believed. We model a 16% 6-yr. EPS CAGR (FY19-FY25e) and believe the stock should trade at 12x our $3.90 FY24 EPS estimate. Plus, we continue to see a better-than 2.5:1 upside/downside skew. BBWI's 2Q EPS report increased our conviction in this view," wrote the analyst.
The analyst added that their conversations with investors suggest many are worried a deepening recession will cause downward revisions to BBWI's FY22 guidance and weak growth in FY23.
However, while they agree that this is a "major risk," they think the "market is missing many of the ways BBWI's business could improve over the course of FY22 and FY23."
"The key is BBWI's multiple self-help drivers. Some examples are its investments in product, marketing, omni-channel, and a new loyalty program, as well as streamlining the organizational structure and working with suppliers to reduce costs," said the analyst.