By Mackenzie Tatananni

Bath & Body Works stock was rising Tuesday following an upgrade at J.P. Morgan, where analysts are forecasting an upward trajectory for the retailer's top and bottom lines in 2025.

Shares climbed 6.1% to $38.69 after analysts led by Matthew Boss upgraded Bath & Body Works to Overweight from Neutral and raised their price target to $47 from $41. The new price target suggests a potential upside of nearly 6%. The S&P 500 was up 0.1%.

Boss noted that Bath and Body Works has underperformed the S&P 500 by 70% over the past three years. Shares are trading at 40% below the company's beauty industry peers, or roughly nine times the firm's estimated earnings for fiscal 2026, Boss added.

This valuation gap appears to have played a key role in the stock's upgrade. While shares have trailed the market, Bath & Body Works has maintained an operating margin in the high teens as well as a consistent, low single-digit growth rate at the top line, Boss wrote.

He pointed to management's "three-legged stool" of product, marketing, and technology, claiming the strategy supports demand across the company's core products like hand soap as well as adjacencies like laundry detergent.

"To that end, management cited product innovation as the key enabler of a return to consistent AUR growth," Boss continued. AUR, or average unit retail, represents the selling price of an item within a set period.

Collaborations represent potential "amplifiers" to support above-market revenue growth, Boss continued. In his view, one near-term catalyst will help the retailer start the first quarter of 2025 on a high note.

The analyst flagged a Walt Disney collaboration that launched Sunday, containing 85 products including six fragrances inspired by Disney Princess characters. The collection is Bath & Body Works' largest so far, with the widest price range to date, Boss wrote.

The analyst also nodded to the retailer's expanding high-teens operating margins and "visible shareholder returns," with $825 million of annual free cash flow generation supporting a consistent dividend yield and share repurchase program over the next two years.

Boss isn't the only optimist. Of 19 analysts surveyed by FactSet, 13 rate Bath and Body Works at Buy or equivalent, five rate it at Hold, and one rates it at Sell.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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February 18, 2025 11:33 ET (16:33 GMT)

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