L Brands (LB) & Cato (CATO) Financial Analysis

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L Brands (NYSE: LB) and Cato (NYSE:CATO) are both retail/wholesale companies, but which is the superior business? We will contrast the two companies based on the strength of their valuation, risk, analyst recommendations, earnings, dividends, profitability and institutional ownership.

Institutional & Insider Ownership

76.6% of L Brands shares are owned by institutional investors. Comparatively, 75.3% of Cato shares are owned by institutional investors. 17.3% of L Brands shares are owned by insiders. Comparatively, 10.6% of Cato shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Risk & Volatility

L Brands has a beta of 0.77, meaning that its share price is 23% less volatile than the S&P 500. Comparatively, Cato has a beta of 0.79, meaning that its share price is 21% less volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
L Brands 7.30% -93.09% 11.09%
Cato 1.15% 6.37% 4.13%

Valuation and Earnings

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
L Brands $12.63 billion 0.81 $983.00 million $3.20 11.51
Cato $849.98 million 0.76 $8.54 million N/A N/A

L Brands has higher revenue and earnings than Cato.

Analyst Recommendations

This is a breakdown of recent ratings for L Brands and Cato, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
L Brands 4 16 12 0 2.25
Cato 0 1 0 0 2.00

L Brands currently has a consensus price target of $43.47, indicating a potential upside of 18.07%. Cato has a consensus price target of $20.00, indicating a potential downside of 22.24%. Given L Brands’ stronger consensus rating and higher possible upside, research analysts clearly believe L Brands is more favorable than Cato.

Dividends

L Brands pays an annual dividend of $2.40 per share and has a dividend yield of 6.5%. Cato pays an annual dividend of $1.32 per share and has a dividend yield of 5.1%. L Brands pays out 75.0% of its earnings in the form of a dividend. Cato has raised its dividend for 8 consecutive years.

Summary

L Brands beats Cato on 11 of the 16 factors compared between the two stocks.

L Brands Company Profile

L Brands, Inc. operates as a specialty retailer of women's intimate and other apparel, beauty and personal care products, home fragrance products, and accessories. The company operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International. Its products include loungewear, bras, panties, athletic attire, shower gels and lotions, aromatherapy, body care, soaps and sanitizers, handbags, jewelry, and personal care accessories. The company offers its products under the Victoria's Secret, PINK, Bath & Body Works, La Senza, Henri Bendel, C.O. Bigelow, White Barn, and other brand names. L Brands, Inc. sells its merchandise through company-owned specialty retail stores, which are primarily mall-based; through its Websites comprising VictoriasSecret.com, BathandBodyWorks.com, HenriBendel.com, and LaSenza.com; and through franchises, licenses, and wholesale partners. As of March 8, 2018, the company operated 3,071 company-owned specialty stores in the United States, Canada, the United Kingdom, Ireland, and Greater China, as well as sold its brands through approximately 800 franchised locations worldwide. The company was formerly known as Limited Brands, Inc. and changed its name to L Brands, Inc. in March 2013. L Brands, Inc. was founded in 1963 and is headquartered in Columbus, Ohio.

Cato Company Profile

The Cato Corporation, together with its subsidiaries, operates as a specialty retailer of fashion apparel and accessories primarily in the southeastern United States. It operates through two segments, Retail and Credit. The company's stores and e-commerce Websites offer a range of apparel and accessories, including dressy, career, and casual sportswear; and dresses, coats, shoes, lingerie, costume jewelry, and handbags. It also provides men's wear, as well as lines for kids and newborns. The company operates its stores and e-commerce Websites under the Cato, Cato Fashions, Cato Plus, It's Fashion, It's Fashion Metro, and Versona names. As of February 3, 2018, it operated 1,351 stores in 33 states. The company also provides credit card services to its customers, as well as layaway plans. The Cato Corporation was founded in 1946 and is headquartered in Charlotte, North Carolina.

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