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At Abercrombie & Fitch, The Young And The Loyal

Abercrombie & Fitch (ANF), known for its youth apparel, "is one of the best values in specialty retail," says Barbara Wyckoff of Buckingham Research Group. Buckingham, which owns shares, has a target for the stock, now at 54.41, of 75. That's based on 17 times Wyckoff's forecast of 2006 earnings of $4.40 a share and expected free cash flow of $2.54 a share. Next year she predicts profits will leap 20%, to $5.28 a share, based on increased volume. Wyckoff sees sales jumping to $3.3 billion in 2006 and to $3.8 billion in 2007, vs. 2005's $2.7 billion. "Affluent teens are unaffected by the slowing economy," she explains. And analysts note that the weak sales earlier in the year will provide better comparisons in the second half. Alexandra Hallen Utterman of investment bank William D. Witter, which owns shares, is also high on A&F. Its 20% operating margin, says Utterman, is among the best in its group. She likes the way A&F is appealing to a wider age group, from pre-teens to post-college kids. "The youth market is an ever-growing sector," she says, and A&F has introduced "new concepts (such as sophisticated casual wear for post-college) to broaden the demographic." Utterman notes that A&F has kept its customers loyal by carefully providing different age groups with apparel tailored to them.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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