Some ailing companies never manage to turn around for shareholders. Others manage to stage miraculous turnarounds. Abercrombie & Fitch Co. (NYSE: ANF) falls somewhere in the middle, but after it hit 52-week highs, one analyst believes that this turnaround has a lot of room to run.

Abercrombie was among the top analyst upgrades and downgrades on Friday, January 19, 2018, with the independent research firm Argus raising its Hold rating to Buy. What stood out here was that Argus matched the existing street-high price target of $25 in this call. While Argus is not part of the sell-side research tracked by Thomson Reuters, this price target is more than $10 higher than the consensus analyst target price of $14.62.

Note that Abercrombie shares were already much higher than most analyst targets. This implies, as we have seen with so many other companies, that analysts may have to handily raise their expectations and targets for Abercrombie.

Before focusing on just the bullish sides of the call, it is important to understand that Abercrombie has not released any guidance on December sales after the holiday season. That means that the earnings report still being six weeks or so out may help or hurt the thesis behind the Argus bullish call. When the company posted earnings last November, its guidance for the quarter was for comparable sales to be up in the low single digits and net sales to be up in the mid-to-high single digits.

According to the Argus report, Abercrombie shares had been on a five-year slide, and the company had fallen out of favor with its former core market. A driving force for the turnaround is that a new CEO is implementing a turnaround plan and beginning to see positive results. This was highlighted as being after two positive earnings surprises in a row, and also that Abercrombie is becoming more transparent with investors.

Another driver here is that Argus sees Abercrombie’s valuations as attractive compared to its peer group. Also mentioned as a support tool was the 4.2% dividend yield.

A new chief marketing officer and the company launching a new marketing campaign were also touted as being around the company’s historic association with outdoor adventure and exploration. The Argus report said:

We note that young consumers’ perceptions of the Abercrombie & Fitch brand have also improved significantly, according to a YouGov BrandIndex survey, which should help to boost sales and market share over time.

And Abercrombie shares were even seen as positive from its stock chart perspective. Its shares were represented as having been in a long-term bearish trend of lower highs and lower lows that dated all the way back to May of 2013. That has now changed, after a double-bottom in the $8 to $9 range has acted as a floor and as the recent stock price trends have been bullish.

On the fundamentals and valuations, Argus said:

Assuming a still below-industry-average price/sales ratio of 0.6, we arrive at an implied value of $30 per share, which we further discount to a target price of $25. We note that the turnaround at this small-cap company carries risks, and believe that the shares are more suitable for investors with higher risk tolerance.

Abercrombie is also said to be continuing to refine its store portfolio, which included 700 U.S. stores and 189 overseas locations at the end of the most recent quarter. The current plan is to close about 60 stores in the United States through natural lease expirations. The company also recently opened stores in Los Angeles and Tianjin, China, and year to date it has remodeled 12 Hollister stores and downsized four A&F locations with a smaller footprint intended to boost customer engagement. Argus noted that it is already showing increased traffic and improved productivity.

While this upgrade from Argus is a tie for the most aggressive call among Wall Street analysts covering the stock, the reality is that analysts in general have been removing or limiting their old negative expectations that had persisted for years. Of the analysts covered by Thomson Reuters, there were two Buy/Outperform ratings, nine Hold/Neutral ratings and five5 Sell/Underperform ratings. And the consensus target price has risen. At $14.62 on last look, that is up from $13.92 just 30 days earlier, from $12.08 just 60 days ago and from $11.42 90 days ago.

Thomson Reuters shows that the sales decline is expected to stop. Annual sales of $3.74 billion in January 2015 fell to $3.32 billion a year ago, and these are now expected to be $3.39 billion for the current year. Next year’s sales are expected to be $3.35 billion.

Being in the apparel retail business can be rather tough. If your company misses the mark with consumers for more than a quarter or two, the brand loyalty can die and some investors can feel like all the company’s former growth and glory are simply no longer relevant.

If Argus is right, then Abercrombie may still offer much upside for investors. Many analysts have a lot of catching up to if that is the case.

Abercrombie shares were handily higher on Friday, rising 4.3% to $19.77 in midday trading. The stock hit a new 52-week high of $19.86, and its 52-week low is all the way down at $8.81. This was a $31.50 stock back in March of 2016, and it was a $50 stock in May of 2013 and an $80 stock at its peak back in 2007.

Stay tuned.

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