Abercrombie & Fitch (ANF) is a specialty retailer of Abercrombie & Fitch, abercrombie kids and Hollister brand apparel and accessories for men, women and kids; the company operates 857 stores globally, notes Crista Huff, growth and dividend expert and editor of Cabot Undervalued Stocks Advisor.
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The company remains on track toward its multi-year goals of improving revenue, profits, expense-control, data analytics and global store expansion. Abercrombie’s CFO will present at the Jefferies 2019 Consumer Conference on June 18.
Abercrombie recently announced a new 5 million share repurchase authorization, bringing the total authorization to 7.6 million shares, or 11.6% of outstanding shares. That’s a very bullish announcement that tells investors several things:
• The company had $75 million burning a hole in its pocket, and nothing pressing to spend it on, so adding to the repurchase authorization seemed like the best use of cash.
• The company deemed its share price to be so ridiculously cheap that they felt compelled to take advantage of the current share price and buy back their stock.
• Wall Street will necessarily raise earnings estimates: presuming no change in net income, fewer shares outstanding means that earnings per share (EPS) will necessarily increase.
• The share price will likely increase from Abercrombie’s purchases, purchases on the part of investors who are gaining more confidence in the company’s finances and outlook, and short sellers who are throwing in the towel and buying shares to cover their short positions.
Prior to the aforementioned upcoming adjustments to consensus earnings estimates, analysts expected EPS to fall 10.4% in 2019, then to rise 40.8% in 2020. The 2019 P/E is 15.2. –The stock provides a current yield of 5.0%.
ANF is a small/micro-cap stock. The share price suffered disproportionately in the May stock market downturn due to poor first quarter results at other retailers, investor worries over China tariffs, a slow start for retailers in May and news of Abercrombie’s downward 2019 earnings guidance related to the expense of two store closures.
The new share repurchase announcement put a halt to the downturn. I’m moving ANF from Hold to a Buy recommendation in our "buy low opportunities" portfolio. Small stocks like this can move fast, and I believe risk-tolerant growth investors, traders and dividend investors can benefit by buying ANF now.
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