Analyst Note| Jaime M. Katz, CFA |
While we expect to alter our long-term tax rate for narrow-moat Bath & Body Works when the company offers full fourth-quarter results, we don’t plan any change to our $85 fair value estimate in response to the firm’s holiday update. The company nudged up its outlook for its fourth quarter to sales that increase at a high-single-digit rate (above the mid- to high-single-digit pace it pointed to prior) and now expects EPS at the high end of its prior $2.00-$2.25 guidance. Given that our fourth-quarter prognosis implied 8% sales growth and $2.11 in EPS, we don’t see any reason to adjust our 2021 outlook ($7.8 billion in sales and $4.40 in EPS). We view shares as attractive, representing one of the most consistent financial performers in the consumer cyclical space. The brand delivered average sales growth of 13% over the last five years, and we forecast 8% growth over the next decade driven by ongoing product innovation, category expansion, and international growth.