Here's How To Value Abercrombie & Fitch, According To Morgan Stanley

Morgan Stanley analysts mentioned that despite the 16 percent decline in Abercrombie & Fitch Co. ANF shares on May 27, the stock continued to have the third highest valuation in the specialty space.

Nevertheless, the analysts lowered the price target on the company from $19 to $17.

Stock Valuation

“Investors observe ANF's 4x EV/EBITDA multiple and see a "cheap" stock. However, D&A is two thirds of ANF's EBITDA,” the analyst stated.

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Despite the decline in share price, the stock continues to trade at 11x, the analysts pointed out, while noting that Abercrombie & Fitch appeared expensive on several valuation metrics, including P/E.

“Additionally, when looking at adjusted net debt to EBITDAR at the end of 2015, ANF has the third highest leverage in our coverage universe at 4.1x [...] given its extremely high international lease obligations,” the analyst said.

According to the Morgan Stanley report, this level of leverage was a cause for concern, given the volatility in the company’s cash flow, earnings and sales.