Analysts, Option Traders Chime in After L Brands' Earnings

A costly split of the firm's two brands may be putting pressure on the shares

Deputy Editor
May 20, 2021 at 10:40 AM
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L Brands Inc (NYSE:LB) has reversed course this morning, dipping into the red after a brief pop early in the session. The company just posted first-quarter earnings of $1.25 on $3.02 billion in revenue -- handily topping analysts' estimates. The Victoria's Secret and Bath & Body Works parent said the quarterly beat was driven by stronger sales for its full-price items, though it declined to share any type of forecast ahead of its recently announced company spinoff. This spinoff looks like it could cost LB a pretty penny. The firm said the split itself could cost as much as $370 million over the next couple years, and roughly $80 million in annual expenses for both brands. 

The equity is distancing itself further from its May 18 record high of $71.99, extending yesterday's bear gap. This pullback is now testing its footing at the 40-day moving average which has provided a near constant layer of support for the better part of a year. In fact, within the past 12 months, LB has added an impressive 450%, and sports an 80.9% year-to-date lead. 

Analysts are brushing off this negative earnings reaction. So far, LB has received four price-target hikes, including one from UBS to $96. Now, the 12-month consensus price target stands at $76.90 -- representing a 17.3% premium to current levels. Digging deeper, nine analysts covering the equity called it a "buy" or better coming into today, while eight said "hold." 

Option traders are leaning bullish today as well. Within the first hour of trading, 3,542 calls and 2,704 puts have been exchanged -- triple the intraday average. The two most popular contracts are the May 70 and 68 calls, with positions being opened at the latter. 

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