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In a research note on Monday, a UBS analyst maintained a Neutral rating and $41 per share price target on Victoria’s Secret & Co (NYSE:VSCO).
The analyst told investors they see slow EPS growth and limited P/E expansion potential.
“VSCO is a turnaround stock, but we believe the market won’t see evidence of a turnaround this year. We expect macro headwinds related to inflation will cause VSCO’s FY22 EPS to decline 36% y/y and remain below FY21 levels,” wrote the analyst.
UBS believes the Victoria’s Secret (VS) brand’s turnaround could gain traction as the macro environment improves. However, they do not see any near-term catalysts to drive EPS growth acceleration or P/E expansion.
“Our FY22 EPS estimate is 4% below consensus and we forecast a -3% 5-yr. post-pandemic EPS CAGR. Our rating is Neutral because we think low growth is fairly priced at an 8x P/E valuation and we see a balanced upside/downside skew,” the analyst added. “We lower our FY22 EPS estimate 12%, reflecting a tougher 2H22 outlook.”
“We expect VSCO’s FY23-24 operating margins modestly recover as supply chain cost pressures ease, but these remain in the HSD% range and 10-20 bps below our prior forecast. Our FY23 and FY24 EPS estimates are down 8% and 6%, respectively, given lower sales and margin outlooks.”
