Abercrombie & Fitch Is Starting On The Long Road To Recovery

Aug.16.12 | About: Abercrombie & (ANF)

Beaten down Abercrombie & Fitch (NYSE:ANF) had one of its best days in months. The company provided a well-received earnings report and also received upgrades from a couple of analysts as well. All in all, this cheap retailer looks like it has started down the long road to recovery, and could start to reward patient investors.

Positives from the earnings report and analysts' reactions:

  • Abercrombie made 19 cents a share, two cents better than consensus estimates.
  • Online sales jumped 25% Y/Y to over $125mm.
  • The company beat earnings estimates by a penny and reported $40mm more revenues than analysts' projected.
  • It also boosted its buyback authorization plan by 10mm shares.
  • Susquehanna raised its price target to $43 from $38 after the Q2 earnings.
  • Wedbush also raised its price target to $45 from $30 on the back of this earnings report. It upgrade ANF to "buy" from "neutral" as well.

"Abercrombie & Fitch operates as a specialty retailer of casual apparel for men, women, and kids." (Business description from Yahoo Finance).

Four additional reasons ANF still has upside at $35 a share:

  1. The company has almost $300mm in net cash (10% of market capitalization) on the books and an insider purchased over $350k in shares in late May. It also yields 2.2%.
  2. The stock is selling towards the bottom of its five year valuation range based on P/E, P/S, P/CF and P/B.
  3. ANF is selling at just over 11 times forward earnings, a discount to its five year average (17.1). It also sports a five year projected PEG of under 1 (.80).
  4. The stock looks like it has recently bottomed and just crossed its 50 day moving average (See Chart).

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Disclosure: I am long ANF.