On Monday, Abercrombie announced that it would not sell itself, despite reportedly holding talks with fellow teen retailers American Eagle Outfitters Inc. (AEO) - Get Report , Express Inc. (EXPR) - Get Report as well as private equity firms. The possibility of a transaction "was the primary upside risk factor" for the stock, Wolfe Research LLC analyst Adrienne Yih wrote in a note on Wednesday. Without one, Yih believes shares have little support over the next several quarters.
Weighing on Abercrombie's stock is "anemic" store traffic and deeper promotions. Further, Yih thinks there is "limited" historical examples of successful brand re-positions in retail, and also believes a 9% dividend is unsustainable.
"We thought the odds of a deal at a premium to current prices were very low," Yih wrote. "With dwindling free cash generation, oversupply in the teen sector, difficulty in re-positioning Abercrombie, and deteriorating inventory returns, we believe an acquisition would translate to a great deal of risk for the acquirer."
For the end of 2017, Yih lowered Abercrombie's price target to $8 per share, which represents a multiple of about 0.1 times fiscal 2018 sales. That low a multiple would normally be used for companies with going-concern warnings, she added.
Abercrombie shares closed Wednesday at $8.89, down 3.8%, after losing more than 20% of their value on Monday alone.
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