The following is an excerpt from the February issue of The Strategist Newsletter. It has been submitted to Seeking Alpha as a sample of our product outside of the commodity and rare earth space in which the majority of our Seeking Alpha contributions have been concentrated.
This is a follow up to a previous newsletter article in which we laid out our qualitative and quantitative thesis in Limited Brands in great detail. The goal of this article is to share our "back of a cocktail napkin" valuation model on Limited Brands.
Limited Brands is a company with six core brands, the primary three of which are Victoria's Secret, Pink, and Bath & Body Works.
The company announced this past week it is raising its regular dividend to $0.80/share per annum. We believe that the management target of 15% margins is very achievable and see an excellent long term story for the stock. With the opening of the flagship Victoria's Secret store in London 2012, Limited Brands will begin an international expansion of a premier retail brand.
The Limited Brands investment thesis consists of two stages. Before the international growth component of the Limited Brands story comes the efficiency story, in that management is looking to achieve 15% operating margins. The management team has been together for a while and our faith in them is based in part on their excellent execution in the 2009-2010 time frame, which has been reflected in the stock rallying from $6 in March 2009 to the mid-thirties in late 2010.
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