Our DCF-based price target for ANF of $98 is based on a 14% discount rate and a 4.0x terminal multiple on year 5 EBITDA. Our target price implies an F25E EV/EBITDA multiple of ~5.5x.

Risks to achieving our target price include: (1) comps deteriorate relative to our estimates; (2) competitive promotional pressures cause ANF to increase promotions resulting in greater margin pressure; (3) new merchandise does/does not resonate with customers at A&F and/or Hollister; (4) international stores productivity and profitability deteriorate at a rate faster than we anticipate; and (5) cotton or other input costs rise significantly.

If the impact on the company from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price.