UBS Sees Slow EPS Growth for Victoria's Secret & Co. (VSCO)

In a research note on Monday, UBS analyst Jay Sole maintained a Neutral rating and $41 per share price target on Victoria's Secret & Co. (NYSE: VSCO).

The analyst told investors they see slow EPS growth and limited P/E expansion potential.

"VSCO is a turnaround stock, but we believe the market won't see evidence of a turnaround this year. We expect macro headwinds related to inflation will cause VSCO's FY22 EPS to decline 36% y/y and remain below FY21 levels," wrote Sole.

UBS believes the Victoria's Secret (VS) brand's turnaround could gain traction as the macro environment improves. However, they do not see any near-term catalysts to drive EPS growth acceleration or P/E expansion.

"Our FY22 EPS estimate is 4% below consensus and we forecast a -3% 5-yr. post-pandemic EPS CAGR. Our rating is Neutral because we think low growth is fairly priced at an 8x P/E valuation and we see a balanced upside/downside skew," Sole added. "We lower our FY22 EPS estimate 12%, reflecting a tougher 2H22 outlook."

"We expect VSCO's FY23-24 operating margins modestly recover as supply chain cost pressures ease, but these remain in the HSD% range and 10-20 bps below our prior forecast. Our FY23 and FY24 EPS estimates are down 8% and 6%, respectively, given lower sales and margin outlooks."

By Sam Boughedda

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