We had learnt in school that “An ounce of prevention is worth a pound of cure.” It simply means that a timely action can prevent some serious loss later on. How about applying the same principle to your portfolio? Exiting an underperforming stock at the right time helps maximize your portfolio’s returns. L Brands, Inc. (NYSE:LB) is one such stock that is no longer in investors’ good books. Let’s find out why.
The specialty retailer of women’s intimate and other apparel, beauty and personal care products has been witnessing a downtrend in the Zacks Consensus Estimate. Moreover, the company currently carries a Zacks Rank #5 (Strong Sell). This implies that analysts covering the stock are not convinced about L Brands’ performance in the near future.
Shares of the company have nosedived roughly 20% in the past one-year period, and the stock touched a 52-week low of $60.00 on May 19, 2016. It hit a 52-week high nearly eight months ago on Nov 4, 2015.
Why the Stock is Out of Favor Now
Though L Brands registered the third straight quarter of positive earnings surprise with its first-quarter fiscal 2016 results, it failed to check the decline in the bottom line.
The company posted quarterly earnings of 59 cents a share that beat the Zacks Consensus Estimate of 55 cents but fell 3.3% from 61 cents earned in the year-ago quarter. The year-over-year decline in adjusted earnings was primarily due to foreign currency headwinds, incremental interest expense and pre-opening costs for the flagship Victoria’s Secret store. Foreign currency headwinds impacted the bottom line by 7 cents a share.
Consequently, L Brands lowered its fiscal 2016 earnings projection and provided a subdued outlook for the second quarter against the backdrop of its performance and short-term challenges. Management now projects earnings in the band of $3.60–$3.80 per share for fiscal 2016, down sharply from the previous guidance of $3.90–$4.10. On the other hand, the company expects fiscal second-quarter earnings in the range of 50–60 cents a share and comparable sales to be flat to down in the low-single digits.
Estimates Trend South
Consequently, the Zacks Consensus Estimate of $3.70 and $3.99 for fiscal 2016 and fiscal 2017 has dropped 39 cents and 49 cents, respectively, over the past 60 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased 14 cents to 56 cents over the same time frame.
With L Brands’ share price tumbling and estimates witnessing downward revisions, it would not be prudent to keep the stock in your portfolio, at least for the time being.
Stocks that Warrant a Look
Investors interested in the retail space may consider some better-ranked stocks such as Delta Apparel Inc. (NYSE:DLA) , sporting a Zacks Rank #1 (Strong Buy), and The Children's Place, Inc. (NASDAQ:PLCE) and Carter's, Inc. (NYSE:CRI) , both holding a Zacks Rank #2 (Buy).
CHILDRENS PLACE (PLCE): Free Stock Analysis Report
CARTERS INC (CRI): Free Stock Analysis Report
DELTA APPAREL (DLA): Free Stock Analysis Report
L BRANDS INC (LB): Free Stock Analysis Report
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Zacks Investment Research