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Abercrombie & Fitch (ANF) Upgraded To 'Buy' By UBS Securities, PT Lifted To $66

 May 01, 2012 01:56 PM

(By Balaseshan) UBS Securities analyst Roxanne Meyer upgraded her rating on shares of Abercrombie & Fitch Co. (NYSE:ANF) to "Buy" from "Neutral" on trend stabilization and favorable risk/reward, and raised her price target to $66 from $51.

Meyer is upgrading ANF rating given a more favorable risk/reward assessment with better upside potential to EPS estimates in 2012 and beyond.

The analyst's constructive view is based on: U.S. trends in line with muted expectations given Q1 industry strength and her recent store checks which reflect a moderation of year-over-year promo levels, her belief that European trends are stabilizing, and her analysis of the impact of U.S. store closings/growth of higher margin international and DTC over the next few years highlights conservatism in her (upwardly revised) base-case.

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Meyer's key takeaway from her recent tours of A&F and other stores in Europe is that trends did not worsen in Q1. She assumed comps remain negative at the flagships, but stabilization of trends is key and sets the stage for improvement given easier compares, lower AURs, a sourcing cost reversal, and a boost from the Olympics.

The analyst's work on scenario analyses (on sales and 4-wall margins) gives her comfort that: her (above-Consensus) base case estimates appear conservative, international stores could account for over 60% of total EPS by 2015 (with DTC accounting for over 25% of EPS), and she sees favorable risk/reward on EPS outcomes (2015 bull/bear of up $4.64/down $3.26) with more realistic upside closer to $2.00.

[Related -Abercrombie & Fitch Co. (ANF) Q3 Earnings Preview: A Cold November Rain?]

The brokerage raised its 2012 EPS estimate of the specialty retailer to $3.65 from $3.53 and its 2013 estimate to $4.70 from $4.66.

ANF is trading up 5.86% at $53.11 on Tuesday. The stock has been trading between $40.25 and $78.25 for the past 52 weeks.

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