Finally, five months after its spin-off and IPO, Victoria's Secret (NYSE: VSCO) price action appears to have steadied. The stock has been through a roller coaster over the past several months, but has now found a bottom and is heading higher.
The reason for the increase is the recently announced buyback plan, but there are additional elements at play. The company is gaining from its new status as a stand-alone organization. In our opinion, the firm should benefit from consumer trends in 2022 and see its share prices rise back up to post-IPO highs.
In terms of the institutions, they made it clear that they are in favor of the spin-off and like what they see at Victoria's secret. Institutional buying during the fourth quarter accounted for more than 60% of the company's market cap, with shares trading close to $55. Their overall ownership now stands at over 75%. Insiders, on the other hand, took advantage of lock-up expiration and sold their shares during the quarter, bringing their holdings down to less than 1%.
Victoria’s Secret Reveals Buyback Program
Victoria's Secret surprised the market with a unanimously approved accelerated buyback program worth $250 million, or around 5.8% of the company's market capitalization. This alone should be enough to keep share prices moving sideways if not higher for the near term. The bulk of the investment will be made at the end of the year, with the remainder filled shortly after. The company also reaffirmed its outlook, as well as the news, which predicts more than 44 percent sequential growth in the quarter.
“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
Analysts are optimistic about Victoria's Secret, but they have been cooling recently. The consensus rating is a weak Buy with a price target of $81.78, implying about 50% potential upside, however the target has a significant downward trend. While lowering her price target from $69 to $54, Kimberly Greenberger, an analyst at Morgan Stanley, maintained an Equal Weight rating and set the low point among the analysts. This target is based on the stock being fairly valued at current levels but does not incorporate the effect of the buyback program, which was announced after it was calculated
Takeaway: Victoria’s Secret Confirms Support
The buyback announcement sent shares of Victoria's Secret soaring, and they appear set to rise further. The price action not only confirms support at the short-term moving average, but it is also accompanied by bullish signals that indicate a sustained climb. The $60 level is the next barrier for resistance, with a move above that likely bringing in new all-time highs. Victoria's Secret will return with earnings in mid-February.