Investing.com -- Citi lifted its rating for Bath&Body Works (NYSE:BBWI) from Neutral to Buy in a note Friday, citing an improving sales and margin outlook. 

“We are upgrading BBWI from Neutral to Buy and raising our TP from $40 to $48 following a post-4Q double-digit stock sell-off,” the analysts wrote.

The firm pointed to a turnaround in sales after several years of declines. “2H24 sales (ex-calendar-shift) inflected positively, and F25 guidance calls for sales growth.” 

Management is executing well, with “a strong innovation pipeline (collabs, Everyday Luxuries, men’s, lip, laundry) and abating home fragrance headwinds,” which Citi believes will drive “upside to F25 sales guidance of +1-3% (mid-point implies flat comps).”

Citi expects first-quarter trends to outperform expectations. “We believe 1QTD trends are running above 1Q guidance, and expect a 1Q sales beat and strong margin flow-through to help allay investor fears (that are weighing on the multiple),” adds Citi. 

The firm also sees a favorable capital return outlook, noting that “we model ~$820M in FCF this year (~10% of mkt cap) and we expect nearly all excess cash (after dividends) to go toward share repos, suggesting upside to ~$300M share repo guidance (we model $600M).”

Citi raised its estimates, stating, “We are raising our F25/F26E from $3.62/3.97 to $3.83/4.47 based on slightly higher sales/GM and higher share repos.” The price target increase to $48 reflects a “F25 P/E of 12.5x and an F25E EV/EBITDA multiple of ~8.5x.”

The analysts also highlighted product momentum, noting that BBWI’s collaborations, including “the recent Disney (NYSE:DIS) princess drop,” have been “taking significant space on the selling floor, driving traffic and creating social media buzz.” 

Adjacent categories, which “grew DD in F24,” are expected to contribute a “100bps+ tailwind to sales.”

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