Victoria's Secret's 47% Surge Has Wall Street Hitting The Brakes — Here’s Why UBS Downgraded VSXY Stock

• UBS contends that much of the turnaround story and future earnings improvement are already reflected in the share price, leaving more limited potential for additional upside from current levels.
• Jefferies analyst Corey Tarlowe downgraded Victoria's Secret to ‘Hold’ from ‘Buy’ after the company's latest earnings report, while raising his price target to $73 from $65.
• Tarlowe believes the company's stronger outlook and sharp share-price appreciation have led investors to increasingly recognize the sustainability of its recovery.

Victoria’s Secret & Co.’s (VSXY) blockbuster first-quarter (Q1) performance and subsequent 47% stock surge have prompted some Wall Street analysts to step to the sidelines, arguing that the retailer's turnaround story is now largely reflected in its share price.

According to TheFly, analysts at UBS downgraded Victoria’s Secret to ‘Neutral’ from ‘Buy’. The firm increased its price target for VSXY stock to $90 from $80, implying an upside potential of about 13% from Tuesday’s closing price.

Victoria’s Secret shares were down about 1% in Wednesday’s pre-market trade after skyrocketing over 47% on Tuesday.

Why Did Analysts Downgrade VSXY Stock?

UBS cited valuation for the downgrade, arguing that the key drivers behind its bullish investment thesis have largely materialized.

While the firm remains constructive on the company's fundamentals and continues to expect margin expansion driven by sales growth and improved fixed-cost leverage, it believes those positives are now widely recognized by investors.

UBS contends that much of the turnaround story and future earnings improvement are already reflected in the share price, leaving more limited potential for additional upside from current levels.

Jefferies analyst Corey Tarlowe downgraded Victoria's Secret to ‘Hold’ from ‘Buy’ after the company's latest earnings report, while raising his price target to $73 from $65. Tarlowe believes the company's stronger outlook and sharp share-price appreciation have led investors to increasingly recognize the sustainability of its recovery.

With the stock undergoing a substantial re-rating and the market assigning greater value to what the firm sees as potentially durable fundamentals, he argued that much of the upside is now reflected in the valuation, prompting the downgrade.

Not Everyone Is Pessimistic On VSXY

Barclays lifted their price target on Victoria's Secret to $108 from $67 and reiterated an ‘Overweight’ following the stronger-than-expected Q1 performance.

The firm stated that Victoria’s Secret’s strength was evident across product categories, sales channels and geographic markets, highlighting broad-based momentum throughout the business.

Goldman Sachs raised its price target on Victoria's Secret to $84 from $56 while maintaining a ‘Neutral’ rating. The firm added that sustained momentum and improving multi-year sales trends could support additional valuation gains for VSXY.

Victoria’s Secret reported earnings per share (EPS) of $0.6 on revenue of $1.56 billion, beating Wall Street estimates of an EPS of $0.32 on revenue of $1.52 billion, according to Fiscal.ai data.

How Did Retail Investors React To VSXY Stock?

Retail sentiment on Stocktwits around Victoria’s Secret trended in the ‘bullish’ territory, with message volumes at ‘extremely high’ levels at the time of writing.

VSXY stock is up 48% year-to-date and 284% over the past 12 months. The iShares Core S&P Small-Cap ETF (IJR) is up 33% over the past 12 months, while the Vanguard Small-Cap Index Fund ETF (VB) is up 30%.

The iShares Russell 2000 ETF (IWM) is up 42% during this period, while the Vanguard Small-Cap Value Index Fund ETF (VBR) is up 25%.

Also See: Trump Claims Iran Has Committed To No Nuclear Weapons – Says He’s 'Getting Along Quite Well’ With Supreme Leader Khamenei

For updates and corrections, email newsroom[at]stocktwits[dot]com.