The Market Underappreciates Abercrombie & Fitch Balance Sheet - Citi

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By Sam Boughedda 

Citi opened a 90-day positive catalyst watch on Abercrombie & Fitch (NYSE:ANF) ahead of the company's third quarter earnings to be reported in late November.

Citi analysts, who have a Neutral Rating and a $19 per share price target on the stock, told investors in a note that "there is no question that the business is facing challenges in 2022, including sales pressure for Hollister (particularly in Europe) and promotional pressures "from an apparel landscape that is over-inventoried."

"We do not expect these pressures to inflect any time soon. However, with an EV of $700MM, the stock currently trades at an EV/sales ratio of 0.20x (near all-time low), which we believe indicates the market is discounting an overly bearish scenario and under appreciates ANF's balance sheet," wrote the analysts.

In addition, the analysts stated the "A&F brand is strong," and while overall business is weak, they do not believe it hasn't worsened materially since 2Q, and they expect progress on clearing inventory to be positive in the third quarter.

"Given the extreme pessimism priced in, we believe the risk/reward skews positive near term," the analysts concluded.