Victoria's Secret & Co. (NYSE:VSCO) has been upgraded to a ‘Buy’ rating from ‘Neutral’ by Bank of America analysts who cited expectations for continued sales momentum and margin expansion that could drive high-teens earnings growth.
The firm also raised its price target to $68 from $58, implying upside from Wednesday afternoon’s price of $51.
Bank of America wrote that it upgraded the shares as it expects sales momentum will continue, supporting mid- to high-teens earnings per share growth driven by operating margin expansion from current levels.
The analysts also see the company’s new management team as taking steps to reposition the brand and support more durable growth.
“Our conviction that sales growth will continue is driven by the renewed focus on product innovation, marketing investments, and outsized growth opportunities in beauty and international,” they wrote.
It also pointed to recent operating trends as supportive of its thesis, highlighting a return to growth in the intimates category and an inflection in new customer additions as indications that product and marketing efforts are beginning to resonate.
On profitability, Bank of America expects operating margin expansion to be supported by buying and occupancy leverage, a pullback in promotions, a higher mix of full-price sales, and cost efficiencies in non-customer-facing areas. The firm models operating margins reaching about 8% over time.
The analysts added that stronger execution could provide additional upside. “We could see upside to sales and resulting expense leverage if improvements to product innovation and marketing ramp faster than expected or there is outsized growth in large opportunity categories such as international and beauty,” they wrote.
Bank of America now forecasts mid- to high-teens earnings growth and argues that this outlook supports a premium valuation relative to traditional apparel peers, citing the company’s margin expansion opportunity and earnings growth profile.