Abercrombie & Fitch Receives Upgrade From Wedbush

Abercrombie & Fitch Co. (NYSE: ANF) received an upgrade Thursday.

The Analyst

Wedbush's Jen Redding upgraded the stock from Underperform to Neutral and raised her price target from $16 to $18.

The Thesis

Redding says recent search trends signal positive inflection in revenues across Abercrombie’s Hollister Asia and Hollister UK segments.

According to Wedbush big data report, Abercrombie's gross margins also run 58 basis points above street consensus estimates at 59.75%.

“At this point, despite elevated promotions y/y, according to our promo tracker, total company gross margin likely tracks in-line to above guidance for margins down roughly 100 basis points assuming US/China tariffs,” Redding wrote in a note.

Redding said a recent announced partnership with alternative payment solutions provider Klarna should provide an initial boost to revenues as well. Partnered retailers typically see an average 44% increase in sales conversions, she said.

“Bottom line, we see current valuation as fair, as shares of ANF now trade at a 66% discount to the company’s 5-year historical PE, down 40% since early May,” Redding said.

Price Action

Abercrombie & Fitch shares traded higher by 1.9% to $17.38 at time of publication.

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Photo credit: Phillip Pessar, Flickr