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As Abercrombie & Fitch's Sales Process Progresses, Is It Time To Step To The Sidelines?

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As Abercrombie & Fitch's Sales Process Progresses, Is It Time To Step To The Sidelines?

Wunderlich analyst Eric Beder sees Abercrombie & Fitch Co. (NYSE: ANF) as a potential acquisition target, pushing him to raise his rating from Sell to Hold.

“Although we believe the company's business model remains broken and the potential for a turn remains limited, in our view, the company's net cash of over $2 per share, dividend yield of almost 7 percent and reports that management has received takeover offers for the business tilts the risk/reward to move us once again to the sidelines,” said Beder.

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American Eagle Outfitters (NYSE: AEO), Express, Inc. (NYSE: EXPR) and Sycamore Partners are all expected to make offers for Abercrombie. However, Morgan Stanley analyst Kimberly Greenberger noted back in May, “While we see the strategic rationale in a merger of equals (reducing promotional impressions in the market, corporate headquarter savings, etc.), a takeout of the company at a premium would be highly risky, in our view.”

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Will Abercrombie Start To Show Signs of Life?

While the stock has dropped nearly 16 percent since Beder’s downgrade on May 11, the American retailer has a couple of valuable pieces that could give share prices a bump.

A couple of the highlights include an improved sales process, and “Abercrombie’s ability to maintain a net cash balance sheet and to continue to register a dividend yield of almost 7 percent could attract value driven investors.” Beder noted.

It's Not All Good

Beder still does not believe in Abercrombie’s current business model and does not see the shift to target an older customer base is going to pay off in the near future.

Overall, there is not a clear picture ahead for Abercrombie, pushing Beder to step to the sidelines.

Related Links:

One Thing Abercrombie M&A Rumors Don't Change: It's A Declining Retailer That May Never Again Turn A Profit

Abercrombie & Fitch Shorts Might Be Getting Squeezed
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Image Credit: By Ruehl boi11386 at English Wikipedia, CC BY-SA 3.0, via Wikimedia Commons

Latest Ratings for ANF

DateFirmActionFromTo
Sep 2019Initiates Coverage OnNeutral
Sep 2019UpgradesUnderperformPeer Perform
Sep 2019MaintainsUnderweight

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Posted-In: Eric Beder Kimberly Greenberger Morgan Stanley Sycamore PartnersAnalyst Color News Upgrades Analyst Ratings Best of Benzinga

 

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