Ahead of the Bell: Abercrombie & Fitch upgraded

Since the beginning of the year, the New Albany, Ohio-based company has fallen by more than half, about 55 percent, to close at $35.74 on Monday.

"Shares have sufficiently based in a negative high-end consumer thesis," wrote Friedman, Billings, Ramsey analyst Adrienne Tennant in a client note on Monday, adding "the stock has been 'taken to the woodshed' on the notion that earnings per share is too high."

The current stock price suggests fiscal 2009 operating margins could fall to about 13 percent, she said.

The company has held back from focusing on promotions and value, a strategy many teen retailers, such as Aeropostale Inc., have taken. Instead it has kept prices steady as consumers, even usual high-end spenders, cut back amid high food and gas prices and turmoil in financial markets.

The decline in stock price shows "disdain" for the company's "no-promotion" strategy, Tennant said, but this is not completely warranted.

"We continue to believe the high-end consumer is the next to pull back, and certainly one could argue that Abercrombie targets a higher-end consumer; we simply believe the stock sufficiently reflects overwhelming negative sentiment," Tennant wrote.

She upgraded the company to "Outperform" from "Market Perform" but lowered her price target to $45 to $51 to reflect the difficult environment.