There's only upside ahead from here for Victoria's Secret, UBS says

UBS upgraded Victoria's Secret (VSCO) to Buy from Neutral, raising its price target to $46, implying 33% upside, citing increased conviction in management's brand repositioning strategy. Analyst Mauricio Serna anticipates sustained comparable sales growth, strong Q3 results, and significant operating leverage, projecting FY25 as an earnings trough with EPS growth through 2026 driven by 3% annual sales increases and improved gross margins. This upgrade suggests a positive turnaround despite the stock's 17% year-to-date decline.

Analysis

UBS has upgraded Victoria's Secret (VSCO) to "Buy" from "Neutral," significantly raising its 12-month price target to $46 from $25, indicating a 33% potential upside. Analyst Mauricio Serna's increased conviction stems from management's successful brand repositioning efforts for both Victoria's Secret and Pink, which is expected to drive sustained comparable sales growth after years of declines. This positive outlook is further supported by the recent "successful" 2025 fashion show, noted by Goldman Sachs as a catalyst for brand engagement.

Serna projects "solid" third-quarter results and anticipates FY25 as the trough for VSCO's EBIT margin and earnings, with EPS shifting to growth through 2026. The analyst forecasts a 3% year-over-year sales increase over the next two years, driven by stronger North American performance and international momentum. Additionally, improved gross margins are expected from reduced promotional activity and a focus on full-price sales, contributing to significant operating leverage potential beyond current consensus forecasts.

Despite a 17% year-to-date decline in VSCO shares, UBS anticipates sequential operational improvements will boost market conviction in the company's turnaround. The analyst acknowledges near-term tariff headwinds but views FY25 as the earnings trough, projecting growth thereafter. This upgrade suggests current Wall Street consensus understates VSCO's operating leverage and future earnings potential.

Key Decisions for Investors

• Investors should evaluate VSCO's potential for sustained comparable sales growth and operating leverage, as UBS projects a significant turnaround from FY25.
• Monitor upcoming Q3 earnings for confirmation of "solid" results and management's execution on brand repositioning and reduced promotional activity.
• Consider the 33% implied upside to UBS's $46 price target against the stock's 17% YTD decline, weighing the long-term growth trajectory against near-term tariff headwinds.