Victoria's Secret's parent company stock is 'so bad, it's good' according to one Wall Street analyst

• On Friday, Deutsche Bank analyst Tiffany Kanaga upgraded Victoria's Secret parent company L Brands stock to "buy" and raised her price target to $24 because it's "so bad, it's good."
• The upgrade comes after Victoria's Secret reported dismal holiday sales. The weak performance increases the chance the company will be split from L Brands, Kanaga wrote in a Friday note.
• "We do agree with bulls that the window of opportunity for action is fairly limited, and we see risk/ reward now skewed meaningfully to the upside," Kanaga wrote.
• Watch shares of L Brands trade live on Markets Insider.

L Brands, the parent company of Victoria's Secret and Bath & Body Works, is so beleaguered that it has nowhere else to go but up, according to one analyst who covers the company.

On Friday, the stock was upgraded to "buy" from "hold" by Deutsche Bank analyst Tiffany Kanaga, who also raised her price target on shares to $24 from $22, saying her "so bad, it's good" thesis is taking shape.

The rating upgrade comes after Victoria's Secret reported dismal holiday sales earnings and lowered its fourth-quarter earnings guidance Thursday. L Brands stock initially sank as much as 4% in premarket trading on the report, but rebounded and closed up about 4% Thursday.

"We believe yesterday's developments tip the scales more toward a split, likely triggering strategic action in the near-term," Kanaga wrote in a Friday note to investors.

With the fourth-quarter estimate well below expectations and 2020 guidance set to disappoint, it is more likely than not that Victoria's Secret will be split from L Brands, Kanaga wrote. The possibility for action helps manage downside risk for the stock, according to Kanaga.

"We do agree with bulls that the window of opportunity for action is fairly limited, and we see risk/ reward now skewed meaningfully to the upside," Kanaga wrote.

Investor faith in a turnaround at Victoria's Secret is dwindling, and lack of substantial progress could trigger another effort by Barington or other activist investors to further reshape the board through the 2020 annual meeting, according to the note.

In March, Barington Capital Group sent a letter to L Brands urging it to spin off Victoria's Secret, or pursue an initial public offering of Bath & Body Works, another brand under its umbrella that has been a much better performer.

In November, Bloomberg reported that L Brands had three months left to successfully turn around Victoria's Secret to abate further action from Barington.

L Brands has gained roughly 5% year-to-date as of Thursday's close.