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Why Abercrombie & Fitch’s Price Target Is Rising

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Analysts upped price targets

Many analysts have upped their price targets for Abercrombie & Fitch (ANF) after the apparel retailer raised its fiscal 4Q17 guidance, which included important holiday season sales, on January 22, 2018.

On January 24, 2018, RBC raised its price target for ANF to $24 from $16. On January 23, 2018, BMO raised its price target to $22 from $16, while Telsey Advisory Group lifted the price to $24 from its previously projected $17. J.P. Morgan bumped the price target to $21 from $12 while keeping intact its “underweight” rating. Jefferies’ price target now stands at $20, compared with the $17 it projected earlier.

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Following these revisions, the analysts’ average target price for the company is now $19.38, which reflects a 9.9% downside to the stock price as of January 25, 2018. Notably, of the 16 analysts covering the stock, 50% recommend a “hold,” while 19% recommend a “buy,” and the remaining 31% recommend a “sell.”

Stock moves north first and then south

After the outlook upgrade, Abercrombie & Fitch’s stock price surged 12.6% on January 22, 2018, and closed at $22.43. However, it has failed to sustain the momentum and has lost 4.1% since then, closing at $21.51 on January 25, 2018.

Abercrombie & Fitch stated that both its Hollister and Abercrombie brands—as well as sales across all channels—performed well over the holiday season, leading to the above outlook revisions. The Abercrombie brand is expected to post positive comps in fiscal 4Q17.

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The company expects comps (comparable sales) to be up in the high single digits, compared with its earlier expectation of low-single-digit growth. Sales are now projected to be up in the low teens, compared with the mid-to-high single digit growth estimated earlier. However, its gross profit will likely be down 100 bps (basis points), as expected.

Where do peers stand?

By comparison, for American Eagle Outfitters (AEO), nearly 47% of the analysts have provided a “hold” rating. On January 9, 2018, AEO reported an 8% growth in comps to date for fiscal 4Q17 but left its fiscal 4Q17 guidance unchanged, sending investors into a tizzy.

For Urban Outfitters (URBN), 50% of the analysts have maintained a “hold” rating. On January 8, 2018, URBN reported a 2% rise in comps for the two months ended December 31, 2017.

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