BBWI

Please note, after the close on August 2, 2021 L Brands Inc (LB) changed its company name and symbol to Bath & Body Works Inc (BBWI) after spinning off Victorias Secret & Co. (VSCO). Shareholders of LB received 1 share of VSCO for every 3 shares of LB. BBWI and VSCO began trading separately on August 3. The text of the idea will make reference to the original company, L Brands Inc.

Publicly traded companies mentioned herein: L Brands Inc (LB)

Highlights

The presenter is long shares of L Brands (LB), believing its Bath & Body Works segment is underappreciated and not fully reflected in the stock’s valuation. There are a number of near-term catalysts, including the tax-free spin off of Victoria’s Secret that is slated to be completed in August, which is part of how he models a potential bull case double from here in less than a year. He estimates LB earnings of $6.50 this year, so the stock is currently trading at 10-11x on his numbers, which compares favorably to the entire universe of retail / consumer. Applying 15-20x eps, similar to best-in-class retailers, gets him to his upside case. Alternatively, on a SOTP basis, he applies a 6x multiple to VS, on ~$1.3B of EBITDA, as it is currently undergoing a turnaround that is at an earlier stage. He then applies an 11x multiple on ~$2.3B of EBITDA at Bath & Body Works (which he views as the lower-end of best in class) which results in an EV of ~$33B. Factoring in $5.3B of debt, $2.38B of current cash, and some FCF this year equates to a total equity value of ~$31B or ~$112/share (~70% upside from the current price of ~$66/share). In a more conservative scenario where Bath & Body Works only generates ~$1.9B of EBITDA it would result in a price target closer to ~$90/share.