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BMO upgrades Abercrombie on hope of gains in US

BMO Capital Markets analyst John Morris upgraded his rating Tuesday on Abercrombie & Fitch, saying that the teen retailer's U.S. business may be in the early stages of a turnaround.

THE OPINION: The analyst said he previously had a "Market Perform" rating on the teen retailer's stock because of stale product, high inventory levels and excessive markdowns. The company's international business has also suffered due to the weakening economy in Europe.

Abercrombie & Fitch was once an industry leader with its jeans, t-shirts and preppy-casual clothing, but it fell behind when the recession hit and teens turned to lower-priced, fast-fashion stores like H&M.

Profit has yet to recover to its level before the recession.

Morris said Tuesday that he now believes the company is in the early stages of rejuvenating its offerings, better controlling how much merchandise it keeps on hand and moving away from excessive promotions.

The analyst increased the target price from $44 to $61 and raised his rating to "Outperform."

THE STOCK: Abercrombie's stock has suffered a volatile ride during the past 52 weeks. It shares dropped in the spring of 2012 and have only recently recovered, gaining about 70 percent since a low in August. Morris said that despite that rally, Abercrombie's stock was still attractively priced for investors.

Shares increased $1.14 to $50.70 by late afternoon Tuesday, roughly the same level as a year ago.

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