On Friday, Bath & Body Works Inc. (NYSE:BBWI) saw an increase in its price target to $50 from $48 by BMO (TSX:BMO) Capital. The firm maintained its Outperform rating on the stock, signaling confidence in the company's financial trajectory.
The adjustment in the price target follows Bath & Body Works' recent financial performance, which surpassed expectations. The company demonstrated significant gross margin (GM) improvements and earnings before interest and taxes (EBIT) expansion, outperforming predictions. Additionally, the company has continued to pay down its debt, indicating a shift in the business's financial health.
BMO Capital's analyst noted that the company's conservative guidance might have initially impacted the stock's performance. However, the analyst believes that the provided guidance will likely prove to be cautious. The stabilization of GM and EBIT is seen as a strong indicator of the company's ongoing recovery.
The firm emphasized the importance of Bath & Body Works' balance sheet deleveraging as EBITDA improves. This deleveraging is considered a crucial factor in removing one of the primary concerns for investors and could help alleviate pressure on the stock's valuation multiple.
BMO Capital's revised price target is based on a 13 times multiple of the company's forecasted fiscal year 2025 earnings per share (EPS). The Outperform rating has been reiterated, reflecting the firm's positive outlook on Bath & Body Works' prospects.
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