L Brands (NYSE: LB) and Carter’s (NYSE:CRI) are both mid-cap retail/wholesale companies, but which is the superior stock? We will compare the two companies based on the strength of their earnings, institutional ownership, risk, valuation, dividends, profitability and analyst recommendations.

Institutional and Insider Ownership

79.5% of L Brands shares are owned by institutional investors. Comparatively, 97.1% of Carter’s shares are owned by institutional investors. 16.7% of L Brands shares are owned by company insiders. Comparatively, 3.1% of Carter’s shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Dividends

L Brands pays an annual dividend of $2.40 per share and has a dividend yield of 5.8%. Carter’s pays an annual dividend of $1.48 per share and has a dividend yield of 1.5%. L Brands pays out 70.4% of its earnings in the form of a dividend. Carter’s pays out 29.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. L Brands has raised its dividend for 6 consecutive years and Carter’s has raised its dividend for 3 consecutive years. L Brands is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for L Brands and Carter’s, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
L Brands 4 15 11 0 2.23
Carter’s 0 3 9 0 2.75

L Brands presently has a consensus target price of $46.82, indicating a potential upside of 13.20%. Carter’s has a consensus target price of $103.10, indicating a potential upside of 6.12%. Given L Brands’ higher possible upside, analysts plainly believe L Brands is more favorable than Carter’s.

Valuation & Earnings

This table compares L Brands and Carter’s’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
L Brands $12.26 billion 0.96 $2.34 billion $3.41 12.13
Carter’s $3.26 billion 1.43 $494.84 million $5.09 19.09

L Brands has higher revenue and earnings than Carter’s. L Brands is trading at a lower price-to-earnings ratio than Carter’s, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares L Brands and Carter’s’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
L Brands 8.04% -103.18% 12.00%
Carter’s 7.74% 33.18% 13.13%

Risk and Volatility

L Brands has a beta of 0.68, indicating that its stock price is 32% less volatile than the S&P 500. Comparatively, Carter’s has a beta of 0.34, indicating that its stock price is 66% less volatile than the S&P 500.

Summary

L Brands beats Carter’s on 9 of the 17 factors compared between the two stocks.

L Brands Company Profile

L Brands, Inc. operates specialty retail business. The Company is focused on women’s intimate and other apparel, personal care, beauty and home fragrance categories. Its segments include Victoria’s Secret, Bath & Body Works, and Victoria’s Secret and Bath & Body Works International. It sells its merchandise through company-owned specialty retail stores in the United States, Canada, the United Kingdom and Greater China, which are mall-based; through Websites, and through international franchise, license and wholesale partners. It operates in the retail brands, which include Victoria’s Secret, PINK, Bath & Body Works and La Senza. La Senza is a specialty retailer of women’s intimate apparel. It sells its La Senza products at over 120 La Senza stores in Canada. Henri Bendel sells handbags, jewelry and other accessory products through New York and 28 other stores. Mast Global is a merchandise sourcing and production function serving the Company and its international partners.

Carter’s Company Profile

Carter’s, Inc. (Carter’s) is a marketer of apparel for babies and young children in the United States and Canada. The Company owns two brand names in the children’s apparel industry, Carter’s and OshKosh B’gosh (OshKosh). The Company operates through five segments: Carter’s Retail, Carter’s Wholesale, OshKosh Retail, OshKosh Wholesale and International. Its International segment includes company-operated retail stores and online Websites, wholesale operations, and royalty income from its international licensees. It markets products for consumers, and offer various product categories, including baby, sleepwear, play clothes, and related accessories. Its multi-channel international business model – retail stores, online and wholesale – enables it to reach a range of consumers around the world. As of December 31, 2016, its channels included approximately 18,000 wholesale locations, 792 stores in the United States, 164 stores in Canada, and its Canadian and the United States Websites.

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