L Brands, Inc. (NYSE:LB) defied analyst predictions to release its quarterly results, which were ahead of market expectations. L Brands delivered a significant beat to revenue and earnings per share (EPS) expectations, with sales hitting US$3.1b, some 14% above indicated. Statutory EPS were US$1.17, an impressive 432% ahead of forecasts. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the 24 analysts covering L Brands are now predicting revenues of US$12.6b in 2022. If met, this would reflect a reasonable 7.2% improvement in sales compared to the last 12 months. L Brands is also expected to turn profitable, with statutory earnings of US$2.28 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$12.1b and earnings per share (EPS) of US$2.04 in 2022. So it seems there's been a definite increase in optimism about L Brands' future following the latest results, with a solid gain to the earnings per share forecasts in particular.
It will come as no surprise to learn that the analysts have increased their price target for L Brands 24% to US$39.68on the back of these upgrades. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on L Brands, with the most bullish analyst valuing it at US$60.00 and the most bearish at US$17.00 per share. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting L Brands' growth to accelerate, with the forecast 7.2% growth ranking favourably alongside historical growth of 0.3% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to see revenue growth of 9.6% next year. So it's clear that despite the acceleration in growth, L Brands is expected to grow meaningfully slower than the industry average.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around L Brands' earnings potential next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for L Brands going out to 2025, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 3 warning signs for L Brands (of which 1 is a bit unpleasant!) you should know about.
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