One Wall Street analyst sees 54% upside.
One of the top gaining stocks on Monday was Abercrombie & Fitch Company (NYSE:), the clothing retailer that primarily caters to teens and young adults.
Abercrombie & Fitch stock jumped around 6% on Monday to about $98 per share, mainly on a key Wall Street upgrade.
Analysts at JP Morgan boosted their price target for the retailer from $141 per share to $151 per share. That would be 54% higher than the current share price of $98 per share. That’s well above the median price target of $115 per share, but even that suggests a 17% return over the next 12 months.
JP Morgan analyst Matthew Boss cited a strong close to the second quarter for the retailer with continued acceleration into July, according to the Fly.
Abercrombie and Fitch, in its guidance for Q2, said it expected 3% to 5% net sales growth, year-over-year. That is roughly in line with analysts’ expectations. Earnings are anticipated to be between $2.10 per share and $2.30 per share. The consensus among analysts is at the high end of that range. However, the range does fall short of the $2.50 EPS in Q2 2024.
JP Morgan analysts could potentially see the company exceeding those estimates based on the strong close to the quarter.
Stock Is Extremely Cheap
The stock is dirt cheap right now, which is why it looks so attractive. Abercrombie & Fitch stock is down 36% year-to-date, even after Monday’s 6% rally. It is currently trading at just 9 times earnings, making it an excellent value.
Abercrombie & Fitch has continued to generate sales through the stock’s slump this year. In Q1, it had record net sales of $1.1 billion, up 8% year-over-year, driven by its Hollister brand. That topped its own estimates as well as those of analysts. Net income was down 29% in Q1 due to higher cost of sales, which is in part due to tariffs.
Tariffs are projected to have a $50 million cost impact on Abercrombie & Fitch throughout the rest of the fiscal year and reduce the operating margin by 100 basis points. Yet, sales are still strong as the firm raised its net sales guidance in Q1 to a range of 3% to 6% growth.
The Best Value?
It is hard not to like this stock at this valuation, especially since it has historically outperformed its competitors. The stock has had an average annualized return of a ridiculous 59% over the past 5 years and 17% over the past 10 years.
Tariffs will certainly take a bite out of earnings, but company officials said they were working to mitigate the long-term effects. They also plan to open 40 net new stores this year and remodel 40 others – a $200 million capital plan.
A month or so ago I was cautious about Abercrombie & Fitch stock because of the uncertainty around tariffs. I still am, but the report from JP Morgan is encouraging. Is it the best value stock out there right now? It is hard to say until we see more on the impact of tariffs.
But based on its track record, its low valuation, its favorability among analysts, as well as its sales momentum, it is certainly a stock to consider.