Teen Retailers A Bargain On Weakness? (ANF, ARO, AEO, URBN)
As we mentioned Wednesday morning, an analyst at FBR Capital Markets has initiated coverage on some fashion retailers aimed at the teen markets.
The analyst saw Abercrombie & Fitch (NYSE: ANF) as one of the best in the sector, with weakness already priced in, and gave it an Outperform rating.
Urban Outfitters (NASDAQ: URBN) also received an Outperform rating for its growth potential and strong margins, and it was seen as a bargain on the pullback.
Below we take a look at how these four stocks have fared and what analysts in general expect from them.
Abercrombie & Fitch
This New Albany, Ohio-based specialty retailer this week announced new anti-bullying initiatives in support of National Bullying Prevention Month. It sports a market capitalization of less than $3 billion and offers a dividend yield near 2.2 percent. Its long-term earnings per share (EPS) growth forecast is about 14 percent.
Of the 31 analysts surveyed by Thomson/First Call, 14 recommend buying shares. The mean price target, or where analysts expect the share price to go, is more than 18 percent higher than the current share price. The FBR Capital price target is a bit less than the consensus estimate.
The share price plunged in August following a big earnings miss and disappointing guidance, and it has yet to recover. Over the past six months, the stock has underperformed the broader markets, but it still outperformed competitor American Eagle Outfitters.
Jeffries analysts see this New York-based retailer as a leveraged buyout candidate. The nearly $760 million market cap company offers no dividend. The return on equity and operating margin are both in negative territory, and short interest is more than 20 percent of the total float.
Only four of the 26 analysts polled recommend buying shares; the consensus recommendation has been to hold shares for at least three months. The analysts mean price target suggests more than 10 percent potential upside, relative to the current share price. That FBR Capital price target is lower than the consensus estimate.
The share price fell to a multiyear low in early September, but it has risen more than 25 percent since then. Aeropostale has outperformed competitor American Eagle Outfitters over the past six months, though it has underperformed the broader markets.
American Eagle Outfitters
This Pittsburgh-based retailer also is considered by Jefferies and others as a probable leveraged buyout target. Its market cap is less than $3 billion and the dividend yield is near 3.6 percent. The long-term EPS growth forecast is less than 10 percent, but the return on equity is about 18 percent.
The consensus recommendation of the analysts polled is to hold shares, though none rate the stock at Underperform. The analysts see some headroom for shares, as their mean price target is more than 14 percent higher than the current share price. FBR Capital sees about seven percent upside potential.
The share price reached a new 52-week low on Wednesday morning, and it is down more than 25 percent from six months ago. In that time, this stock has not only underperformed peers Abercrombie & Fitch and Aeropostale, but the broader markets as well.
One Urban Outfitter store in New York City has applied for a liquor and restaurant license. The company has a market cap of more than $5 billion, but there is no dividend here either. The return on equity is about 19 percent and the long-term EPS growth forecast is more than 16 percent.
More than half of the 31 analysts surveyed recommend buying shares, and the rest recommend holding them. The mean price target is more than 22 percent higher than the current share price. But the FBR Capital price target indicates less than 15 percent potential upside and would be less than the 52-week high.
The share price slumped following a disappointing report on third-quarter sales and is still drifting lower. It is more than eight percent lower than six months ago. Urban Outfitters has outperformed Abercrombie & Fitch in that time, though it underperformed Gap (NYSE: GPS) and the broader markets.
At the time of this writing, the author had no position in the mentioned equities.
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