After facing significant challenges over the last three years, Bath & Body Works is considered poised for a critical turning point in 2025, according to JPMorgan’s analyst Matthew Boss. The company’s stock, which has suffered a decline of nearly 20% in the past year alone, is receiving an analytical upgrade from neutral to overweight. Boss has also revised the price target to $47 from a previous $41, suggesting that investors could see a potential increase of approximately 28.9% from its recent closing price on Friday. This pivot comes as evidence indicates that the beauty giant has underperformed the S&P 500 by a staggering 70 percentage points over the last three years.
Bath & Body Works’ struggles are not isolated but reflect a wider downturn within the beauty industry. Comparatively, the company is currently trading at about 40 percentage points lower than its sector peers. This context of underperformance raises questions about the company’s strategic direction and how it can reposition itself to take advantage of emerging opportunities within the market. While the overall sentiment has been negative, analysts from LSEG indicate a burgeoning sense of optimism. Notably, out of 19 analysts, 12 have rated the company as a buy or strong buy, reflecting a shift in perspective about its recovery potential.
Boss’s review of Bath & Body Works highlights potential avenues for a “top and bottom line inflection opportunity” this year. The company’s strategy appears centered on expanding operational margins and creating consistent revenue streams through collaborations and product line extensions. Furthermore, the analyst noted that the company’s impressive free cash flow (FCF) of over $825 million annually could bolster strategic initiatives, such as a substantial share repurchase program valued at approximately $1.7 billion through 2025 and 2026. This significant level of FCF positions Bath & Body Works favorably to return capital to its shareholders.
The expected shareholder returns are compelling as well, with a potential 9% return generated solely from capital allocation activities, including a modest 2% dividend. The combination of robust free cash flow, share repurchase plans, and a dividend provides a strong case for investors looking for both growth and income. The recent uptick in stock price, jumping 4.5% before market opening, is a further testament to the renewed investor interest following the analyst’s insights.
While the optimism surrounding Bath & Body Works is palpable, it is essential to approach with caution. Despite the encouraging projections and potential for recovery, the company must navigate external market variables and internal execution risks. The upcoming years will be crucial for Bath & Body Works as it seeks to restore its standing within the beauty sector and deliver strong performance for investors. The focus on strategic innovation and effective capital allocation will determine whether the predicted inflection point can indeed be realized. Stakeholders will be keenly watching how the company adapts and evolves in this competitive landscape.