Between handy containers of hand sanitizer and scented candles, Bath & Body Works products were must-haves during the pandemic. However the stock hasn't done as well recently, falling nearly a quarter this year. Cowen argues that the shares deserve another look.
Analyst Jonna Kim assumed coverage of Bath & Body Works (ticker: BBWI) Monday, and upgraded it to Outperform from Market Perform, with an $82 price target -- about 50% higher than the current market price. She writes that the company is "poised to drive sustainable growth by leveraging its competitive moats in attractive personal-care categories."
Kim argues that Bath & Body Works not only operates in attractive growth categories such as beauty and home fragrance, but enjoys a strong advantage, ranking as the first choice for key younger consumers. In addition, the company has a long track record of product innovation, which should allow it to retain its top spot.
Of course, many Bath & Body Works stores are in malls, a concern for some investors. Yet she notes that its overall portfolio is very profitable, turning in a return on sales between 25% and 36%, and some 47% of its locations are in off-mall locations.
That fact, along with its non-apparel business, means that instead of comparing with to other mall staples, such as Gap $(GPS.AU)$ and Abercrombie & Fitch $(ANF)$, it's more appropriate to consider beauty and personal-care-products companies as its peers, Kim writes. And when looking at a cohort that has names such as Estee Lauder $(EL)$ and Procter & Gamble $(PG)$, Bath & Body Works' valuation -- just 11 times her 2022 full-year estimates -- looks like it has room to expand.
She thinks that given worries about a potential economic downturn, Bath & Body Works deserves credit for having "a proven track record of navigating through macro challenges, and is well positioned to fare better in the current environment given its affordable yet exciting product offerings."
Bath & Body Works stock is up 1.3% to $53.55 in recent trading.
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