Why L Brands Inc. Could Pop 20%

While Fools should generally take the opinion of Wall Street with a grain of salt, it’s not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades — just in case their reasoning behind the call makes sense.

What: Shares of L Brands  gained 1% today after Stifel Nicolaus upgraded the women’s intimate apparel retailer from hold to buy.

So what: Along with the upgrade, analyst Richard E. Jaffe planted a price target of $68 on the stock, representing about 20% worth of upside to yesterday’s close. So while momentum traders might be turned off by L Brands’ year-to-date price weakness, Jaffe’s call could reflect a sense on Wall Street that the company’s longer-term growth prospects are just too cheap to pass up.

Now what: Stifel expects L Brands’ near-term earnings to remain sluggish, but sees a solid opportunity for patient investors. “[F]undamentally, the business is solid and momentum is strong,” said Jaffe. “With the lack of distraction from apparel, we believe management will be able to better focus on the company’s core offerings driving sales and margin. Additionally, without the fashion risk associated with apparel, L Brands should garner a higher multiple.” Given L Brands’ hefty debt load and steep-ish P/E in the high teens, however, I’d hold out for an even wider margin of safety before buying into that bull talk. 

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The article Why L Brands Inc. Could Pop 20% originally appeared on Fool.com.

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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