Abercrombie&Fitch turnaround has 'increasing traction' says Raymond James

Investing.com -- On Friday, Raymond (NS:RYMD) James initiated coverage on Abercrombie&Fitch with an Outperform rating and a $180 price target, citing substantial progress in the company's ongoing transformation.

The firm's analysts project FY25 earnings per share (EPS) at $12.00, higher than the Street estimate of $11.21, supported by revenue and margin growth.

"ANF has significantly revamped its business over the past few years by improving product, widening its customer aperture, closing underperforming stores, and improving digital and store experience," said Raymond James.

This is said to have driven growth, particularly for its Abercrombie brand, which represents 51% of revenue.

While Abercrombie's growth rate is expected to moderate to 7% in FY25, Hollister (49% of revenue) is said to be leveraging the same playbook and is accelerating with an estimated 8.4% growth in FY24.

The firm says margins are a key strength for the company, highlighting that from 2019 to 2023, Abercrombie expanded its EBIT margins by 910 basis points.

While consensus estimates project a slight decline in FY25, Raymond James expects an additional 50-basis-point expansion, driven by revenue growth, operating expense leverage, and scaling of international markets.

Other positives include favorable channel checks, strong international growth potential, and enhanced shareholder returns through share buybacks, supported by a strong balance sheet and robust free cash flow.

Analysts believe these factors position ANF for robust growth above its peers.

However, they also state that risks include slowing growth for the Abercrombie brand, potential industry-wide tariff increases, and reputational risks linked to allegations against a former CEO.

Valued at 15x FY25 earnings, above its historical average of 14x, Raymond James believes Abercrombie's momentum and potential for exceeding expectations justify its premium valuation.

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