Investing.com -- Citi cut its rating for Abercrombie & Fitch (NYSE: ANF) to Neutral from Buy on Thursday, saying the retailer's sharp post-earnings rally has left the risk/reward more balanced despite a strong quarter.

"2Q was an all-around impressive quarter, and 3Q/2H guidance is very encouraging. However, with the stock +36% yesterday and only 6% upside to our new TP of $156, we view the risk/reward as balanced," analyst Paul Lejuez wrote.

The bank stressed that the call is not about fundamentals. Second-quarter results beat on both sales and gross margin, while third-quarter-to-date commentary was especially encouraging, with Hollister sales accelerating versus the second quarter and the Abercrombie brand maintaining momentum. An earlier-than-expected re-acceleration in EMEA was another positive.

Citi also sees upside to second-half average unit retail guidance, which assumes only modest growth after a mid-single-digit increase in the second quarter driven by a pullback in promotions across all regions and both brands.

Management indicated Hollister's second quarter was a tale of two halves, with early choppiness on low inventory before demand materialized as stock improved. The third-quarter acceleration is not being driven by new store openings or wholesale.

Citi raised its fiscal 2026 and 2027 earnings estimates to $13.64 and $13.80, from $11.10 and $12.65, lifting its price target to $156 from $135. It models 5.2% sales growth this year with a 14.9% EBIT margin.