BofA cuts Bath & Body Works shares target on slower growth By Investing.com

BofA Securities has adjusted its outlook on Bath & Body Works Inc. (NYSE: BBWI), reducing the price target to $45.00 from the previous $54.00.

Despite the lower price target, the firm maintained its Buy rating on the company’s shares.

Bath & Body Works reported second-quarter earnings per share (EPS) of $0.37, which was marginally higher than both BofA Securities’ and Visible Alpha consensus estimates of $0.34 and $0.35, respectively.

The slight beat was attributed to better-than-expected margins. However, sales experienced a 2% decline, aligning with the lower end of market expectations.

The company’s management has revised its full-year sales guidance downward, now anticipating a decrease of 2% to 4%, a change from the previously forecasted range of flat to a 2% drop. The revision reflects a slower pace of new customer acquisition than initially projected.

Despite the downward revision in sales guidance and the reduction in the price target, BofA Securities believes there are still opportunities for Bath & Body Works to drive sales growth.

In conclusion, BofA Securities stands by its Buy rating for Bath & Body Works. The firm has chosen to maintain its EPS estimates for fiscal years 2024 and 2025. The new price target of $45 is based on an 8x enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple, a decrease from the previous 9x multiple, indicating a more cautious outlook on the company’s trajectory towards sales growth.

In other recent news, Bath & Body Works reported a 2.1% year-over-year decline in sales, which was attributed to reduced consumer traffic and underperformance in semi-annual sales.

Despite the drop in sales, the company managed to report adjusted earnings per share (EPS) of $0.37 for the second quarter of fiscal year 2024, slightly above the consensus estimate of $0.36. This was backed by a 0.6% increase in gross profit, exceeding analyst expectations for flat growth.

JPMorgan subsequently revised its price target for Bath & Body Works, dropping it to $39.00 from the previous $42.00, while maintaining a neutral rating on the company’s stock. The company also revised its full-year 2024 revenue outlook to a decline of 4% to 2%, which is below the initial guidance range of a 2.5% decrease to flat growth and analyst expectations of a 0.9% decline. The adjusted EPS for the fiscal year is anticipated to be between $3.06 and $3.26.

Bath & Body Works has raised its cost optimization savings target to $130 million from $100 million, which is expected to positively impact both gross profit margin and selling, general, and administrative expenses. The company is also set to repurchase $400 million in shares.

InvestingPro Insights

In light of BofA Securities’ revised outlook on Bath & Body Works Inc. (NYSE: BBWI), it’s pertinent to consider additional insights. According to InvestingPro, management’s aggressive share buybacks demonstrate confidence in the company’s value, which could be a positive signal for investors. This is supported by a high shareholder yield, reflecting the company’s commitment to returning value to its shareholders.

While there have been concerns, with 10 analysts revising their earnings downwards for the upcoming period, Bath & Body Works is trading at a low P/E ratio relative to near-term earnings growth, suggesting that the stock may be undervalued in the context of its growth prospects. Additionally, the company is trading at a low earnings multiple, which could indicate a buying opportunity for value investors.

For those interested in a more comprehensive analysis, InvestingPro offers additional tips on Bath & Body Works, which can be accessed through their platform. These tips delve deeper into the company’s financials and market position, providing investors with a more nuanced understanding of the investment potential Bath & Body Works holds.

It’s also noteworthy that Bath & Body Works has maintained dividend payments for 52 consecutive years, highlighting a strong track record of financial stability and shareholder commitment. With analysts predicting the company will remain profitable this year and considering its profitability over the last twelve months, long-term investors might see the recent price drop as a strategic entry point. The company’s robust return over the last five years further reinforces this perspective.

Investors seeking further guidance will find a total of 11 InvestingPro Tips on Bath & Body Works, including those mentioned above, by visiting https://www.investing.com/pro/BBWI. These tips provide valuable context and could help inform investment decisions in the current market environment.

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