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  (NYSE: LB  ) 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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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

9/3/2015 11:25 AM
LB $90.60 Up +4.87 +5.68%
L Brands CAPS Rating: ****