Analyst Actions: Toll Brothers, Safeway, Abercrombie & Fitch

From Standard & Poor's Equity Research

RAYMOND JAMES CUTS TOLL BROTHERS TO MARKET PERFORM FROM OUTPERFORM

Raymond James analyst Buck Horne says Toll Brothers (TOL) shares have rallied over the past seven weeks and trade at a premium to its peer group average., which at this stage of cycle, when fundamentals still deteriorating, adequately reflects the company's strategic advantages and may be prematurely discounting that a housing recovery is imminent.

Also, Horne is growing increasingly concerned that the company's remarkable resiliency to margin pressure may be waning. He notes that foreclosure rates, mortgagee delinquencies and construction costs are all rising, and there's a down-leg in new home buyer traffic.

While he admires TOL's strong balance sheet and unique business model, he thinks the company faces growth impairment charge risks on developed and undeveloped lots.

MORGAN STANLEY DOWNGRADES SAFEWAY TO UNDERWEIGHT FROM EQUAL-WEIGHT

Morgan Stanley analyst Mark Wiltamuth says Safeway (SWY) is stuck with an upscale strategy in a trade-down economy. He notes SWY has spent five years remodeling its stores into a more upscale look/feel, but consumers are now in economizing mode, trading down and looking for low price points.

He says SWY was the highest priced in four out of five markets in his July price survey. While SWY plans to address this, he says his case study of Stop & Shop's price cuts show it could take 9-12 months of margin sacrifice to change price perception and stimulate same-store sales growth.

With comps eroding and price cuts on the way, he thinks estimate reductions are inevitable. He cuts $2.52 2009 EPS estimate to $2.35 and $2.97 for 2010 to $2.75.

CITIGROUP DOWNGRADES ABERCROMBIE & FITCH TO SELL FROM BUY

Citigroup analyst Kimberly Greenberger says Abercrombie & Fitch (ANF) is poorly positioned in a challenging consumer spending environment given its premium pricing and limited innovation in its fall assortment. She sees ANF likely to fall short of second half guidance and Street estimates.

Greenberger notes that August direct-to-consumer sales fell 8%, which she doesn't believe was expected. She says when she upgraded ANF on Nov. 21, 2007, she had expected accelerating EPS growth on accelerating international growth and better inventory control; but now she thinks deteriorating European economy poses a risk to future revenue growth.

She cuts $4.97 fiscal year 2009 (January) EPS to $4.80 and $5.20 for fiscal year 2010 to $5.00. He also slashed her $73 price target to $45.