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Here's Why L Brands (LB) Stock is a Smart Choice for 2021

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L Brands, Inc. (LB - Free Report) , one of the widely recognized names in the apparel and footwear industry, has exhibited an outstanding run on the bourses in the past six months. Thanks to its operational initiatives, the stock has outpaced the Zacks Retail - Apparel And Shoes industry and the Retail-Wholesale sector. In the said period, shares of L Brands have soared about 95.7% compared with the industry’s rally of 83.2%. Meanwhile, the sector rose 0.1%.

Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. The consensus estimates for the current and next financial year have increased about 15.1% and 12.4% to $4.89 and $5.08, respectively, over the past 30 days. Notably, this Zacks Rank #1 (Strong Buy) stock’s long-term earnings growth rate of 13% and a Growth Score of A highlight its inherent strength. You can see the complete list of today’s Zacks #1 Rank stocks here.

Some Key Facts

L Brands’ sustained focus on cost containment, inventory management, merchandise and speed-to-market initiatives has kept it afloat in a competitive environment. Additionally, the company’s operational efficiencies together with its new and innovative collections bode well. Furthermore, the company’s focus on tapping international markets provides long-term growth opportunities.

The company continues to revamp its business by improving store experience, localizing assortments and enhancing its direct business. During the fourth quarter of fiscal 2020, sales in the Victoria’s Secret direct business surged 33%, while digital penetration increased to 42% compared with 28% in the year-ago period. The company witnessed strength across its Lingerie, PINK and Beauty businesses. Direct channel sales at Bath & Body Works soared 74% during the quarter.

Markedly, sales trend across both Victoria’s Secret and Bath & Body Works segments have been improving, owing to rebound in consumer spending resulting from government stimulus and easing of pandemic-induced restrictions. As a result, management raised its first-quarter fiscal 2021 earnings view. Incidentally, L Brands now envisions earnings per share between 85 cents and $1.00 for the first quarter, up from the earlier-guided range of 55-65 cents.

Meanwhile, management is advancing with its plan to separate Bath & Body Works and Victoria’s Secret businesses. By August 2021, management intends to complete the separation. This will help simplify the company’s organizational structure.

Also, the company remains on track with its previously announced profit improvement plan and intends to generate approximately $400 million in annual savings. Management informed that approximately half of the savings were realized in the back half of 2020, primarily at Victoria’s Secret unit. It added that the remainder is anticipated to be realized in the first half of 2021.

Wrapping Up

L Brands has been undertaking actions to enhance financial and operational performance. Last month, the company announced that it is executing the repayment of debt worth $1.035 billion. It also announced a new share repurchase program worth $500 million. Clearly, such moves would help decrease leverage and enhance returns to shareholders.

3 More Stocks Looking Red Hot

Abercrombie & Fitch (ANF - Free Report) has a long-term earnings growth rate of 18%. It presently sports a Zacks Rank #1.

Levi Strauss & Co. (LEVI - Free Report) has a trailing four-quarter earnings surprise of 54.5%, on average. The stock flaunts a Zacks Rank #1.

Buckle Inc. (BKE - Free Report) witnessed a positive earnings surprise of 5.6% in the last reported quarter. The stock carries a Zacks Rank #2 (Buy).

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