Vita's Value and Victoria's Secret

02/07/2017 8:00 am EST


Vita Nelson

Founding Publisher and Editor, Moneypaper

L Brands Inc. (LB) is an American fashion retailer based in Columbus, Ohio, founded by Leslie H. Wexner in 1963. Its operations include Victoria's Secret and Bath & Body Works, notes Vita Nelson, editor of DirectInvesting.

The company’s distribution channels include about 3,070 stores and online. Its current total market cap of $19billion makes LB a large cap stock. It is considered a solid and well-diversified business with wide economic moat and durable competitive advantages over rivals, and the firm also enjoys a solid corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $3.69 per share this year, up from $3.57 per share in 2015, and to go to net about $3.89 per share in 2017.

L Brands Inc. has paid dividends to investors since 1970, and during the past 5 years it has increased its dividends at an average rate of 10.3%. Its quarterly payment is $0.60 per share.

The value of dividends reinvestment: a hypothetical investment in L Brands has grown cumulatively (including dividends reinvested) 122,838.51% during the past forty years.

However, if you remove dividends reinvestment from the equation, the same hypothetical investment would have grown only 38,734.52% during the same period of time. Its Price to Earnings ratio (a measure of valuation) of 16.9 is 29.6% below its industry average, and according to Morningstar, the stock is trading 12.6% below its Fair Value Estimate, making it attractive for investors with a long-term investment horizon.

From the chart’s perspective, LB looks attractive, trading 33.2% below its two-year high, while it is forming a long price consolidation pattern between $100 and $60 approximately, in which $60 is acting as a technical support level. LB’s dividend reinvestment plan charges no fees for cash investing, dividend reinvestment, safekeeping or termination of the plan. The company offers investors the opportunity to own a leading company with a strong record of delivering shareholder returns and solid strategic execution.

With the stock being fundamental and technically attractive, it may offer an entry point for investors with a longer-term investment horizon.

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