Wall Street is trying to get out in front of what many see as a major transformation under way at L Brands (NYSE:LB), the owner of Victoria's Secret and Bath & Body Works. No fewer than six analysts substantially upgraded their price targets on the retailer, though none more than Deutsche Bank, which hiked its outlook to $27 a share, 68% higher than its prior $16 target and 42% above where L Brands closed yesterday.

J.P. Morgan went from a neutral to overweight rating on the stock and told investors the retailer's risk-reward profile made it "too hard to ignore."

Bath & Body Works store

Image source: L Brands.

Work in progress

What caught their eye was L Brands' plan to trim $400 million in annualized costs as it prepares to spin off Victoria's Secret following a failed planned sale earlier this year.

To achieve those savings, the retailer will do the following:

  • Lay off 15% of its home office workers, or 850 people
  • Manage inventory costs, as inventory receipts at Victoria's Secret tumbled 45% in the spring and are expect to collapse another 50% in the fall
  • Close 250 Victoria's Secret stores while changing the company's management structure
  • Negotiate for rent relief on remaining stores
  • Reduce operating losses in company-owned stores in the U.K. and China

L Brands had agreed to sell a 55% stake in Victoria's Secret for $525 million to private equity firm Sycamore Partners, but the deal fell apart when the coronavirus outbreak forced the retailer to close stores, leading the hedge fund to charge L Brands had violated their contract.

Investors apparently agree with Wall Street's assessment that the retailer is hitting an inflection point and returning to growth and profitability. L Brands' stock is soaring 35% higher this morning and already closing in on Deutsche Bank's price target.

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