Abercrombie's Struggles Are Now Priced In, Says Deutsche Bank

Deutsche Bank upgraded its rating on shares of Abercrombie & Fitch Co. (NYSE: ANF) on Wednesday, from Sell to Hold, keeping its $20 price target, which implies an upside of roughly 4 percent from current valuations.

In a research note, the experts explained after diving into the international business — which faces considerably strong headwinds — they became more negative regarding longer-term traffic trends, and thus decided to cut their fiscal 2017 EPS estimate to $1.02, below the Street’s $1.14. However, they added, the stock price has tumbled 35 percent since the firm initiated coverage on April 26 (versus the S&P 500’s 1 percent decline), and “now fully reflects struggles abroad as well as more well-understood ongoing challenges in the U.S.”

Related Link: Abercrombie & Fitch No Longer A Sell, Vetr Top Raters Say

Deutsche Bank analysts believe Abercrombie & Fitch’s risk/reward profile is more balanced now considering (1) declining traffic in the International segment “with macro uncertainty potentially creating longer-term headwinds,” and (2) a “challenging apparel backdrop in the U.S. with continued weakness in May traffic and retail sales data vs. glimmers of hope for the turnaround through recent brand president hires, strong conversion trends, better weather, and early results from the Hollister new store prototype.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.