The Tide Is Turning For This Teen Retailer

May.14.12 | About: Abercrombie & (ANF)

Brean Murray reiterated its "Buy" rating on Abercrombie & Fitch (NYSE:ANF) and put a $65 price target on the stock ahead of earnings today. The analyst firm said the company should benefit from a better product mix going forward and European fears are overblown. Given ANF's valuation and growth prospects, I believe this could be a catalyst for stock price appreciation.

7 reasons ANF is a value buy at $46 a share:

  • The company should have robust sales growth over the next two years. Analysts project solid double digit revenue growth for both FY2012 and FY2013.
  • The company has a fortress balance sheet with over $600mm in net cash (Approximately $8 a share). It also pays a dividend of 1.5%.
  • The stock is selling for a forward PE of less than 10.5, a significant discount to its five year average (17.3).
  • The market seems to be undervaluing its growth prospects given the stock has a five year projected PEG far under 1 (.65).
  • Competitors American Eagle (NYSE:AEO) and Aeropostale (NYSE:ARO) have both raised guidance in the past two weeks.
  • In addition to Brean Murray, UBS upgraded Abercrombie to a "Buy" from "Neutral" in late April.
  • The median analysts' price target on ANF by the 24 analysts that cover the stock is $56 and Abercrombie was trading as high as $75 as recently as late October.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ANF over the next 72 hours.