Ten reasons why Abercrombie & Fitch is a buy – analyst

As one of the “strongest turnarounds in retail history” Citigroup views the post-earnings sell-off in Abercrombie & Fitch (NYSE:ANF) as an opportunity to own a “unique asset.” The bank upgrades the retailer, giving 9 more reasons why Abercrombie & Fitch (ANF) is a Buy.

Strongest comps in retail: Both ANF and Hollister have comparable sales that are “standouts” in the retail universe, with only Amer Sports’ (AS) Arc’teryx and Birkenstock (BIRK) with higher comps. “There are fashion trends that the ANF concepts are well-positioned to capitalize on, which supports continued comp momentum.”

Hollister showing it can comp the comp: With the strength of Hollister’s brand momentum, Citigroup sees the company’s comparable sales accelerating to 12% in Q3 and 8% in Q4 (with further upside possible).

ANF global store growth opportunity: With fewer stores globally than peers like Old Navy (GAP), Victoria’s Secret (VSCO), and American Eagle (AEO), Citigroup anticipates more store openings in the U.S. and internationally with 18 new stores annually beginning in FY25.

Opportunity for category expansion: The Wedding Shop and Men’s Wedding leaves open the possibility for expansion into accessories, handbags, and footwear.

Conservatism built into H2: Based on management commentary and conservative guidance history, quarter-to-date trends are running above guidance of low double-digit growth, suggesting upside.

Pristine balance sheet: No debt and $1.2B in cash projected at year-end.

Share repo about to ramp up: With no debt and cash building, repos will likely ramp up in the second half of the year, with Citigroup modeling ~$100M in repos in H2.

Mid-teens EPS grower: Combined with an outlook for share buybacks, Citigroup estimates ANF will grow EPS at a mid-teens rate annually through FY28.

Attractive valuation vs lower growth peers: With the post-Q2 sell-off, shares are now at an attractive entry point given a business with strong sales momentum and free-cash flow.

Seeking Alpha authors agree that Wednesday’s sell-off was a “classic” market overreaction and the share price is attractively priced. The stock price discounts a growth rate of just 4.5% or less, levels that are “easily reachable,” Quipus Capital says, also endorsing a Buy rating at current levels.

And investors should remain mindful of management’s ability to engineer a successful turnaround, JR Research says, and advises market players to not “overthink the buying opportunity.”

“After ANF’s significant market outperformance over the past year, its less than stellar release likely spurred profit-taking in early investors as they looked to protect their prized gains,” JR Research added, pointing to ANF’s 177% gain year-over-year versus a more modest 24% increase in the S&P 500.

After plunging as much as 19% on Wednesday, ANF shares are up for two consecutive days for a combined gain of 4%.