Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 20 November 2012 at 9:06 GMT

Analysts Upgrades: ANF, GME & HD raised on successful Q3 earnings

Partner - Senior Portfolio Manager / PP Capital Asset Management

Upgrades and Downgrades After delivering rather dreadful results in its first two quarters, Abercrombie and Fitch (NYSE:ANF) really surprised analysts and investors with its Q3 results last week. The company grew its revenues 8 percent y-o-y, with profits surging 40.5 percent and significantly beating estimates.

After it announced 46 percent higher EPS than was expected, 87 cents vs. 60 cents, and improved full year guidance, Abercrombie’s shares surged during trading. Consequently, analysts have raised their targets on the stock by 21 percent during the past week. In addition to increasing its targets, 4 analysts raised their rating from ‘Hold’ to ‘Buy’ following the announcement.
The stock currently trades at a 14 times its 2013 earnings, close to the level of its competitors American Eagle Outfitters (NYSE:AEO), Gap (NYSE:GPS) and Urban Outfitters (NASDAQ:URBN).

With the holiday season ahead it is interesting to see whether Abercrombie’s momentum continues in the fourth quarter. Analysts have raised their EPS estimate for the coming quarter, now expecting USD 1.9 vs. 1.69 previously.


GameStop Corp (NYSE:GME), a multichannel video game retailer, is still facing declining demand for its products, as y-o-y sales declined for the fourth consecutive quarter. Despite sales dropping 8.9 percent from last year, the company’s earnings surprised analysts, being 17 percent higher than expected.

As you can see from the below graph, GameStop’s revenues express seasonality as most of its revenues come from the holiday season in fourth quarter. Analysts expect sales in the fourth quarter to be USD 3.5bn, same level as last year. 

GME Quarterly Revenues

GameStop announced last week it would close down 200 stores by the end of next year, all of which are losing money. Despite being faced with declining demand analysts seemed to have taken the cost cutting plans positively, and have on average raised their target prices on GameStop by 7.6 percent. On average, analysts have steadily rated the stock as a buying candidate for the past two years, and believe there is roughly a 8.5 percent upside potential.


Just like the above two candidates, Home Depot (NYSE:HD), the world’s largest home improvement retailer, was given higher target rating on back of its earnings call. The company delivered earnings USD 947m on USD 18.1bn revenues, beating analysts’ expectations on both levels. In addition to beating estimates, Home Depot increased its full year sales guidance, now expecting a 5.2 percent sales growth and EPS to grow 23 percent.

The company’s CEO, Frank Blake, stated that the better than expected earnings are ‘the start of the path toward the healing of the housing market’. In the coming quarter, Home Depot could see increased sales in the areas affected by Hurricane Sandy in the US as significant improvements/constructions are necessary.

Year to date, Home Depot has increased by little more than 50 percent in value. Nevertheless, analysts seem increasingly bullish on the stock and have raised the average target price by 7.5 percent for the past week. On a P/E level the stock looks a bit expensive, as it currently trades at a 20.5 forward P/E vs. 10 year average of 15.


Other stocks that were upgraded during the week were for example Nexans and Sonova Holding. Also, for the third consecutive week, Air France reached the upgrades top ten list (see 13.11.2012 & 6.11.2012). 


For additional details about these stocks, take a look at Saxo Bank’s Equity Research offering here.  

I write about the previous week's analyst upgrades and downgrades every week on If you'd like to be notified with an email whenever a new story is posted, become a member of - it's free, and you can sign in with Facebook, Twitter, LinkedIn or Google - and follow the tag "Broker Rating Changes."  You can also bookmark our upgrades/downgrades page.



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