Wells Fargo Downgrades Victoria’s Secret & Co

Wells Fargo has downgraded Victoria’s Secret & Co from overweight to equal weight due to limited upside following a notable rally this year.

The lingerie retailer’s stock experienced a 185% surge in 2023, significantly outperforming the S&P 500’s 12% gain. Currently, it trades at approximately 16 times Wells Fargo's fiscal 2025 earnings estimate, marking the highest multiple since the company’s spin-off.

While Wells Fargo (NYSE:WFC) recognized positive changes under new CEO Hillary Super, such as product revamps and rebranding, it emphasized challenges in maintaining margin improvements and meeting optimistic earnings estimates of $3.50-$4.00 per share.

Wells Fargo's analyst noted, "With retailers widely noting value-seeking activities from consumers, VSCO has highlighted customer response to promotions above expectations."

Victoria’s Secret recorded its first comparable sales growth in 10 quarters in Q3, fueled by robust performance in North America and successful product launches. However, ongoing promotional activities are expected to impact margins negatively.

Despite remaining optimistic about the company's long-term revival, Wells Fargo suggests there are better investment opportunities elsewhere in the short term and advises investors to consider the stock on pullbacks.

Shares of Victoria’s Secret saw a 1% decline, currently trading at $47.55.

The analyst concludes, "We continue to look for opportunities to buy the stock on pullbacks — as we believe the business still has runway and a compelling story into 2025 and beyond."