Analyzing L Brands (LB) & Kate Spade & Co (KATE)

L Brands (NYSE: LB) and Kate Spade & Co (NYSE:KATE) are both mid-cap cyclical consumer goods & services companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, institutional ownership, dividends, risk, analyst recommendations, earnings and valuation.

Insider and Institutional Ownership

78.7% of L Brands shares are held by institutional investors. Comparatively, 97.9% of Kate Spade & Co shares are held by institutional investors. 16.7% of L Brands shares are held by company insiders. Comparatively, 0.8% of Kate Spade & Co shares are held 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.

Analyst Recommendations

This is a summary of current ratings and price targets for L Brands and Kate Spade & Co, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
L Brands 4 17 12 0 2.24
Kate Spade & Co 1 12 1 0 2.00

L Brands currently has a consensus price target of $52.13, indicating a potential upside of 7.85%. Kate Spade & Co has a consensus price target of $20.23, indicating a potential upside of 9.40%. Given Kate Spade & Co’s higher possible upside, analysts clearly believe Kate Spade & Co is more favorable than L Brands.

Valuation & Earnings

This table compares L Brands and Kate Spade & Co’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
L Brands $12.57 billion 1.08 $1.16 billion $3.28 14.73
Kate Spade & Co N/A N/A N/A $1.10 16.81

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

Profitability

This table compares L Brands and Kate Spade & Co’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
L Brands 7.73% -101.19% 11.49%
Kate Spade & Co 0.44% 1.11% 0.43%

Volatility & Risk

L Brands has a beta of 0.81, suggesting that its stock price is 19% less volatile than the S&P 500. Comparatively, Kate Spade & Co has a beta of 1.75, suggesting that its stock price is 75% more volatile than the S&P 500.

Dividends

L Brands pays an annual dividend of $2.40 per share and has a dividend yield of 5.0%. Kate Spade & Co does not pay a dividend. L Brands pays out 73.2% of its earnings in the form of a dividend. Kate Spade & Co has increased its dividend for 7 consecutive years.

Summary

L Brands beats Kate Spade & Co on 8 of the 15 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.

Kate Spade & Co Company Profile

Kate Spade & Company is engaged in the design and marketing of a range of accessories and apparel. It operates through three segments. The KATE SPADE North America segment consists of the Company’s kate spade new york and JACK SPADE brands in North America. The KATE SPADE International segment consists of the Company’s kate spade new york and JACK SPADE brands in international markets, which operates principally in Japan, Asia (excluding Japan), Europe and Latin America). The Adelington Design Group segment primarily consists of exclusive arrangements to supply jewelry for the LIZ CLAIBORNE and MONET brands. In addition, the Adelington Design Group segment serves J.C. Penney Corporation, Inc. (JCPenney) through exclusive supplier agreements for the LIZ CLAIBORNE and MONET jewelry lines. As of December 31, 2016, it operated 98 the United States Specialty Retail Stores; 35 Foreign Specialty Retail Stores; 65 the United States Outlet Stores; 17 Foreign Outlet Stores, and 54 Concessions.

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