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On Jan 16, Zacks Investment Research upgraded Abercrombie & Fitch Company (ANF - Analyst Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Abercrombie has been witnessing rising earnings estimates on the back of strong fiscal third-quarter 2012 results and an enhanced guidance for fiscal 2012. Moreover, this well-known casual apparel retailer has either surpassed or met estimates in the last 4 quarters delivering an average beat of 36.4%. The long-term expected earnings growth rate for this stock is 18.9%.

On Nov 14, Abercrombie reported third-quarter earnings of 87 cents per share, surging more than 52% year over year and significantly beating the Zacks Consensus Estimate of 59 cents. The robust quarterly performance was primarily driven by strong top-line growth along with improved margins and a lower effective tax rate.

Driven by robust sales performances in the international market, total sales increased 9% to $1.170 billion compared with the year-ago quarters’ sales. Moreover, Abercrombie’s quarterly revenue surpassed the Zacks Consensus Estimate of $1.115 billion.

Based on the strong quarterly performance, Abercrombie raised its earnings guidance for fiscal 2012 to a range of $2.85–$3.00 per share, compared to its earlier projection of $2.50–$2.75.

The Zacks Consensus Estimate for fiscal 2012 increased 18.4% to $2.96 per share as most of the estimates were revised higher over the last 90 days. The current estimate is within the guidance range provided by Abercrombie. For fiscal 2013, the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 37.5% to $3.58 per share.

Other Stocks to Consider

Besides Abercrombie, other stocks in the apparel retail sector that are currently performing well include Citi Trends Inc. (CTRN - Analyst Report), DSW Inc. (DSW - Snapshot Report) and American Eagle Outfitters Inc. (AEO - Analyst Report). All these companies carry a Zacks Rank #1 (Strong Buy) except American Eagle, which carries a Zacks Rank #2 (Buy).

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