Finally, five months after the spin-off and IPO, Victoria's Secret (NYSE:VSCO) price action appears to be stabilizing. The stock has seen a wild ride over the past few months but has put in a bottom and is now moving higher. The ultimate reason is the newly announced buyback program, but there are other factors in play. The company is benefiting from its new status as a standalone business, but the institutions have been buying as well.
In our view, the company should also benefit from consumer trends in 2022 and see its share prices move back up to the post-IPO highs.
The institutions made it resoundingly clear they favor the spin-off and like what they see in Victoria’s Secret. Institutional buying during the 4th quarter amounted to more than 60% of the company’s market cap, with shares trading near $55 and bringing their total ownership to over 75%. On the other hand, insiders took advantage of lock-up expiration and sold during the quarter, bringing their holdings down to less than 1.0%.
Victoria’s Secret Announces Buyback Program
Victoria’s Secret surprised the market with a late Christmas present. The board unanimously approved an accelerated buyback program worth $250 million or about 5.8% of the market cap. This alone should be enough to keep share prices moving sideways, if not higher, for the foreseeable future. The initial purchase will be made at the end of the year, with the remainder filled shortly after. The company also reiterated its guidance and forecast of more than 44% sequential growth in the quarter. The only bad news is that guidance is in line with the Marketbeat.com consensus estimate, but we do see upside risk in the numbers.
“Over the past few months, we have stabilized our business and created a platform for future growth while generating significant cash flow. Our financial stability and cash flow potential are pillars of strength and competitive advantages. We believe this share repurchase reflects our confidence in the company and is another step on our journey to create long-term, sustainable value for our shareholders.”
Analysts Are Cooling Toward Victoria’s Secret
The analysts are bullish on Victoria’s Secret, but they have been cooling in regards to the Marketbeat.com consensus estimate. The consensus rating is a weak Buy with a price target of $81.78, which implies about 50% of upside, but the target has a noteworthy downward trend. The Marketbeat.com consensus is down nearly 10% in the last 90 days and 5% in the last 30, with the most recent downgrade fairly bearish.
Morgan Stanley analyst Kimberly Greenberger maintained an Equal Weight rating while lowering her price target from $69 to $54, setting the low point among the analyst. This target assumes the stock is fairly valued at current levels but does not include the impact of the buyback program, having come out before it was announced.
Technical Outlook: Victoria’s Secret Confirms Support
Shares of Victoria’s Secret popped in the wake of the buyback announcement, and look ready to rally. The price action not only confirms support at the short-term moving average but is accompanied by bullish indicators that point to a sustained rally. The next target for resistance is near the $60 level, a move above that would open the door to $72 and then a new all-time high. Victoria’s Secret will report earnings again in mid-February.
