On Tuesday, Deutsche Bank (ETR:DBKGn) expressed a positive outlook for Bath & Body Works Inc. (NYSE: BBWI) stock, raising the price target on the stock to $52.00 from $51.00 while maintaining a Buy rating.
The adjustment comes after the company reported its strongest sales growth in ten quarters, with a 3.1% increase, surpassing both the Street's expectations of 1.2% and the buy-side's projection of flat growth. The third-quarter performance is seen as a key indicator of the company's momentum heading into the second half of the year.
The firm noted that Bath & Body Works' sales inflection in the latter half of the year supports a bullish case for the stock. The company's ability to manage margins effectively is expected to contribute to a potential re-rating of its multiple.
This quarter's results showcased broad-based strength across Bath & Body Works' core categories, which has contributed to consistent top-line growth throughout 2024.
Despite a competitive promotional environment, the company's management has demonstrated adept cost control, increasing its full-year cost savings target to $150 million, up from the previous estimate of $130 million. Additionally, concerns about the impact of the normalization of the candle market on the business have been assuaged.
The analyst highlighted that with Bath & Body Works' core categories showing resilience, expansion into new product areas, and strategic initiatives gaining traction, the company is well-positioned for sustainable growth in 2025 and beyond.
The current share price, trading at multiples of 10.2 times and 9.1 times the consensus earnings per share estimates for 2025 and 2026 respectively, is deemed attractive compared to the three-year specialty peer average of 11.3 times. This valuation is seen as offering a compelling entry point for investors, reinforcing the Buy rating.
In other recent news, Bath & Body Works Inc. has demonstrated strong financial performance in the third quarter, with net sales reaching $1.6 billion, marking a 3% increase from the previous year. Earnings per diluted share were reported at $0.49. This led to an upward revision of its full-year financial guidance.
Following these robust results, Goldman Sachs (NYSE:GS) reaffirmed a Buy rating on the company, maintaining a steady price target of $52.00. In contrast, Piper Sandler raised its price target for the company to $36, while maintaining a neutral rating, expressing caution regarding the need for consistent sales growth and significant margin improvements.
Other recent developments include an expansion of the company's loyalty program membership to 38 million active members, the launch of new product lines, collaborations, and the opening of its 5,100th store internationally.
Despite challenges from the conflict in the Middle East affecting sales, Bath & Body Works Inc. is preparing for a strong Q4 holiday season and expects to generate significant adjusted free cash flow.
InvestingPro Insights
Bath & Body Works Inc. (NYSE: BBWI) continues to demonstrate financial resilience, aligning with Deutsche Bank's positive outlook. According to InvestingPro data, the company's market capitalization stands at $7.84 billion, with a notably low P/E ratio of 7.45. This valuation metric supports Deutsche Bank's view that the current share price offers an attractive entry point for investors.
InvestingPro Tips highlight that BBWI has maintained dividend payments for an impressive 52 consecutive years, underscoring the company's commitment to shareholder returns. This long-standing dividend history complements the company's recent strong sales growth and effective margin management mentioned in the article.
Additionally, BBWI has shown a significant return over the last week and a strong return over the last month, with InvestingPro data reporting a 1-week price total return of 18.31% and a 1-month return of 18.55%. These recent performance metrics align with the positive momentum discussed in the Deutsche Bank analysis.
For investors seeking a deeper understanding of BBWI's potential, InvestingPro offers 11 additional tips, providing a comprehensive view of the company's financial health and market position.
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