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The Ratings Game: Bath & Body Works earnings show strength beyond soap and hand sanitizer

Bath & Body Works Inc. says it is prepared for a fall-off in the soap and sanitizer business following pandemic highs, and after an earnings beat as a standalone business, analysts are upbeat about the company’s prospects.

“The market thinks Bath & Body Work’s big CY20 growth was fueled by robust hand sanitizer sales which will reverse when the pandemic ends. We think the growth was more broad based and will be largely sustainable,” wrote UBS analysts in a note.

“Bath & Body Works’ 2Q21 result strongly supports our thesis, in our opinion.”

UBS rates Bath & Body Works stock buy with a $90 price target.

Bath & Body Works
BBWI,
+0.87%
,
alongside Victoria’s Secret & Co.
VSCO,
-1.23%
,
reported their first quarterly results as separate publicly traded companies on Wednesday. Bath & Body Works’ profit and sales beat expectations.

Read: Victoria’s Secret soars in its first days as a stand-alone company, with shares up 29%

Prior to the separation, analysts were upbeat about Bath & Body Works even as Victoria’s Secret struggled to regain relevance.

Bath & Body Works got a boost in 2020 from sales of hand soap and sanitizer amid the COVID-19 pandemic.

Now, the stock is down 8.3% over the past month after concerns that sales of these two items will drop.

For the year to date, the stock is up almost 50%, outpacing the benchmark S&P 500 index
SPX,
+0.77%
,
which has gained 18.1% for the period.

“As we talked about at the end of last year, soaps and sanitizer in total had gotten to be about 20% of the total business, up from roughly 14% of the business in the prior five-year timeframe,” said Andrew Meslow, chief executive of Bath & Body Works, on the earnings call, according to FactSet.

“We would expect that it will normalize somewhere in the mid-teens and that’s consistent with what we’ve seen here through the first two quarters of the year.”

Now, according to Meslow, body care, a big category for the business, is showing “strong” year-over-year growth.

And: Honest Co. shares keep falling after earnings miss, but J.P. Morgan sees a buying opportunity

“Bath & Body Works remains a best-in-class story in our space despite more moderate go-forward growth,” wrote Wells Fargo in a note.

Wells Fargo rates Bath & Body Works stock overweight with an $80 price target.

 “Though management’s 2H tone reflected a more conservative approach to the business (following 12+ months of record outperformance), we don’t believe this came as a surprise to most investors who are familiar with Bath & Body Works’ massive outperformance the past 12-to-18 months.

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