Wednesday, July 20, 2011

Today's Major Market Move - Abercrombie & Fitch (ANF) Up 50% for the Year

One of the best performing stocks in the U.S equity markets this year has been Abercrombie and Fitch (ticker: ANF). Its nearly 50% gain so far this year puts it in the top 10 of the S&P 500 (Citigroup shouldn't be in the list; they reversed split earlier in the year and we are in the process of adjusting our historical data).

Taking a look over longer time frame, ANF's stock price has recovered to pre-crisis levels, thanks mainly to a big earnings beat in the calendar 4th quarter of last year. (eps estimate: .03, eps actual 1.03). Expectations are now high for the calendar 4th quarter of this year where Abercrombie is expected to double earnings YOY.

(Note: the earnings announcement for the calendar 2nd quarter is scheduled for aug 17th).

The clothing retail business in general has received a boost from depressed cotton prices, which are down over 50% from their 2011 high. Of the commodities we track on, cotton is by far the worst performer being down 35% since the beginning of the year (wheat is the next worst, down 14%).

Part of the reason for the decline in cotton prices may be the result of a less expensive cotton alternative being developed. From the motley fool:
Other more cotton-dependent companies have turned to natural alternatives. Naturally Advanced Technologies has developed a method of making a cotton-like fabric from flax, which is cheaper and easier to grow. The company is still in the process of commercializing but has already signed deals with the likes of Hanesbrands (NYSE: HBI ) and Levi Strauss.

(Click here for a larger view.
Click here for the current performance of stocks in the S&P 500.
Click here for a chart comparing % growth of eps estimates, eps actuals and stock price.
Click here for the current chart of cotton futures.)

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