Wedbush's Shopping List: Abercrombie, American Eagle And Burlington Stores

Wedbush consumer analyst Jen Redding has a shopping list of stocks to buy amid a market-wide sell-off with a common theme of fashion names:

The Analyst

Redding upgraded:

• Abercrombie & Fitch Co. ANF from Neutral to Outperform, price target lifted from $14 to $16.
• American Eagle Outfitters AEO from Neutral to Outperform, unchanged $14 price target.
• Burlington Stores Inc BURL from Neutral to Outperform, price target lifted from $230 to $246.
• Zumiez Inc. ZUMZ from Underperform to Neutral, price target lowered from $28 to $23.

Abercrombie ANF: 'Shares Oversold'

The fashion retail sector is seeing a headwind from the coronavirus and the negative headlines are likely to continue, Redding wrote in the note. But shares of Abercombie have been pushed to valuation levels not seen since 2008 which makes it an "attractive pick." After all, the company showed a strong comp sales gain in early 2020.

The stock is now trading at 2.5 times EV to forward EBITDA which is 68% below the group average of 7.8 times. Shares are also trading at a 71% P/E discount to its five-year average versus the group average trading at a 16% discount.

"Fundamentally we see upside driven by the company's strategy for square footage rationalization and store transformation, and appreciate the company's healthy balance sheet," the analyst wrote.

American Eagle AEO: 'Room To Soar'

American Eagle is a victim of the "market firesale" as shares are down around 28% since coronavirus concerns started to dominate headlines, Redding wrote. The stock is now trading at a 48% P/E discount to consensus EPS which is "well below" the group average of 17%.

The company is backed by $417 million in cash and equivalents with zero long-term debt which is a "strength" in the current volatile environment, the analyst wrote. American Eagle has also presented multiple growth strategies, attractive product offerings and backed by a management team with a "blue chip" mentality focused on creating value.

Burlington Stores BURL: 'Favorable' Strategy

Off-price retailer Burlington announced a strategy for 2020 consisting of driving inventory levels lower by a double-digit rate, Redding wrote. Management also plans on improving its ability to take advantage of sales trends and maintain a degree of "freshness."

Burlington is also looking to close its online store to better focus on sales growth and expansion in its profitable physical stores. This "favorable" strategy supports the case for an "attractive growth" profile moving forward, the analyst wrote.

Zumiez ZUMZ: 'Resets Valuation'

Zumiez's stock is trading at a P/E multiple of 8.8 times 2020 EPS estimate which is a "fair" valuation even though it represents a 56% discount from its five-year average, Redding wrote. The company also has 90% exposure to the U.S. market which represents a near-term concern given the current macro environment.

The company's longer-term outlook looks more positive as momentum in hardgoods and men's categories could offset some weakness. Zumiez also has no long-term debt on the balance sheet.

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