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


With core business clearly deteriorating, Abercrombie & Fitch Co. (NYSE: ANF) bulls have been shifting their attention to recent market buyout rumors. Unfortunately, the M&A route may be a dead-end for Abercrombie as well, Morgan Stanley analyst Kimberly Greenberger said.

Abercrombie just reported a wider-than-expected $0.91 per share loss in fiscal fourth quarter, and Greenberger said there is no reason for optimism that the company can turn around its business anytime soon. Morgan Stanley cut its Q2 EPS estimates from -$0.19 to -$0.39. The firm now expects a full-year EPS loss of $0.02 compared to its previous estimates of +$0.30.

Abercrombie shares were seen down 6.33 percent in Friday trading and are now down 37.64 percent over the past 12 months, the stock will likely continue to trade based on M&A rumors in the near-term, Greenberger stated.

Related Link: Amid Takeover Reports, Abercrombie & Fitch Flies On Eagle's Wings

Rumors Swirl, But Greenberger Stays Skeptical

Earlier this week, the Wall Street Journal reported that Cerberus Capital Management and American Eagle Outfitters (NYSE: AEO) are working on a potential buyout bid for Abercrombie. However, a takeover would be a questionable move, Greenberger said.

“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.”

At this point, the value of Abercrombie’s brands has already been damaged. In addition, Abercrombie currently has an equity value of around $930 million compared to roughly $3 billion in debt.

Morgan Stanley maintains an Underweight rating on Abercrombie and a $9 price target for the stock.

Latest Ratings for AEO

Date Firm Action From To
Apr 2017 B. Riley Downgrades Buy Neutral
Mar 2017 Bank of America Downgrades Buy Neutral
Jan 2017 Buckingham Initiates Coverage On Neutral

View More Analyst Ratings for AEO
View the Latest Analyst Ratings