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Shareholders Liking Limited Brands' Style


Company authorizes special share dividend, repurchase program.

Asian stocks ended lower. The Hang Seng and the Nikkei were off 0.27% and 0.28%, respectively. But Europe was up in early trading. And here in the US, we're currently trading lower.

Here's what I'm focused on this morning:

Limited Brands
The Ohio-based retailer famous for Victoria's Secret and Bath & Body Works offered up a pretty exciting announcement last night after the bell.

Per the release: "As part of its ongoing commitment to return value to shareholders, Limited Brands announced today that its Board of Directors has declared a special dividend of $1 per share and has authorized a $200 million share repurchase program."

Some thoughts:

1. It looks like I may have been wrong on this one. In this past I've argued that the shares were approaching fair value in the low $20s. But I'll tell you, the above is some really good news and it will likely bode well for the future.

2. Why would the board ponder a buyback with the shares anywhere near its highs unless it thought it was still a decent value and could possibly go higher?

3. I like that it's willing to toss some coin back at shareholders. It demonstrates that it's got their interests at heart.

4. Estimates for this year have been moving on up, which is bound to draw some positive attention from fund managers.

Starbucks (SBUX):
Justin Sharon writes this morning in Upgrades & Downgrades: Starbucks Set to Perk Up that UBS upped its rating on the big-name coffee chain to Buy.

My thoughts:

1. I haven't always been the chain's biggest cheerleader, but I've been warming up to the story in recent months (see Seven Reasons Starbucks Is Hot). My feel is that individuals are and will be more willing to indulge more in the months ahead thanks to the improving economy in the US. And for those that are still reluctant to drop several dollars on a cup of hot Joe, there's always Via, its instant brand.

2. As for the upgrade, it could be the catalyst that helps push the stock through its 52-week high. That would be an important milestone because I'm banking that it will end up on more radar screens if it does make a new high.

3. Don't get me wrong, I haven't forgotten about Dunkin' Donuts and McDonald's (MCD) and the threats they may be to the company's existing business and expansion. But right now, Starbucks seems to be firing on all cylinders, its story seems to improving, and I think the stock will keep on trucking from here; the next stop could be in the upper $20s.

Piper Jaffray upped its rating to Overweight and I wanted to weigh in.

1. I realize I've been banging the table for McDonald's, but it seems Sonic has been getting more love lately and deserves a closer look.

2. I wrote about the chain with the tasty burgers in an article earlier in the month after KeyBanc goosed its rating. At that point I thought the stock could head to $10 or $11. Well guess what? For better or worse, it's already north of $10.

3. My latest take: I think the shares could indeed get a goose on the heels of this news, but unless you're willing to hold the stock long-term, it might be smart to use a bounce to bail. These shares have come an awful long way in a short time and I'm afraid that once the hubbub dies down, some of the air could empty out of this balloon.

The folks that help me keep things squeaky clean were upgraded to Overweight by Barclays.

My two cents:

1. It's not the sexiest story on the Street right now, and I'm betting it's not going to be on a lot of radar screens in today's session. But at under 15 times this year's estimate, I think the shares are a good value. After all, the company is expected to grow its EPS more than 9% from this year to next year, and it offers up a pretty nice dividend, too. The forward yield is about 3.2%, which is pretty sweet.

2. I don't see Clorox shares zooming higher on the heels of this news, but I do think the stock can be a steady performer over the next year. And if this market ever pulls back, there's a chance some could flock here as a perceived safe haven.

Have a great day!
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