Analysts at UBS have upped their price target on Bath & Body Works after the body care and home fragrance retailer posted better-than-expected first quarter results.
The analysts increased their price target to $38 from $35 but noted that they were maintaining their ‘Neutral’ rating on the stock.
“Our belief is BBWI’s comp trend has decelerated in the second quarter to date and we don’t see a catalyst which will cause an inflection,” they wrote in a note to clients.
“In fact, we continue to believe the US consumer soft goods spending environment will weaken over the next twelve months.”
They wrote that, in their view, the market responds to “rate-of-change” more than valuation.
“Thus, BBWI’s low-looking price-to-earnings ratio (P/E) likely won’t provide much downside support if the company's same-store sales growth rate gets worse over the next 12 months,” they wrote.
“In addition, while our conversations with investors suggest bulls see easy compares ahead and believe BBWI's FY23 guide is beatable, we don't see BBWI's guide as ‘de-risked’ since we doubt it contemplates a "hard landing" macro scenario.”
On Bath & Body Works’ second quarter outlook, the analysts noted that the company had adjusted its FY23 EPS guidance to a range of $2.68 to $3.08 compared to between $2.50 to $3 previously.
They also pointed out that its 2Q sales guidance commentary suggests its same-store sales growth in May could be a negative high single-digit percentage and management’s commentary that the company is on track to deliver more than half of its $200 million cost savings goal during FY23.
Taking these factors into account, the analysts said they have raised their full-year 2023 earnings per share (EPS) estimate by 17% and their 2024-25 EPS estimates by about 7%.
In turn, they raised their price target by 7% to $38, based on 10x their $0.375 full-year 2025 EPS estimate.
Bath & Body Works shares were trading up 1.8% at US$38.79 in the early afternoon on Tuesday.
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