On Wednesday, BofA Securities adjusted its outlook on American Eagle Outfitters (NYSE:AEO) stock by reducing the price target from $21.00 to $18.00 while keeping a Neutral rating on the shares. The decision followed a meeting with key executives from American Eagle at the ICR Conference in Orlando, where the company shared its positive holiday season performance.
Comparable sales for the quarter to date were reported to be up in the low single digits, with Aerie, the company's lingerie and activewear segment, experiencing mid-single digit growth and the American Eagle brand showing a slight increase. According to InvestingPro data, the stock currently trades at $15.92, near its 52-week low of $15.36, suggesting potential value opportunity based on InvestingPro's Fair Value analysis.
The meeting with American Eagle's CFO Mike Mathias, President and Executive Creative Director Jen Foyle, and SVP of Investor Relations Judy Meehan also revealed that the company has raised its operating profit guidance to $135 million, up from the previously estimated range of $125-130 million. This increase is attributed to a 2% rise in comparable sales. The company maintains strong financial metrics, with InvestingPro data showing a healthy current ratio of 1.57 and a 22-year track record of consistent dividend payments.
In response to these developments, BofA Securities analysts have revised their fourth-quarter earnings per share (EPS) estimate for American Eagle, increasing it by $0.03 to $0.52. This uptick is due to a gross margin that exceeded expectations. However, the firm's full-year 2025 EPS forecast remains unchanged at $1.81.
The reduction in American Eagle's price objective to $18 reflects a shift in the valuation multiple from 5.5x to 4.5x enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). BofA Securities notes that this adjustment is in line with a broader re-rating of peer multiples in the sector.
Current InvestingPro analysis shows the stock trading at a P/E ratio of 13.11x, with four analysts recently revising their earnings estimates upward for the upcoming period. For deeper insights into AEO's valuation and over 30 additional financial metrics, investors can access the comprehensive Pro Research Report available on InvestingPro.
The maintained Neutral stance by BofA Securities suggests that the analysts see a balanced risk/reward scenario for American Eagle stock. They acknowledge positive aspects, such as the promising performance of Aerie, but also recognize a more subdued growth forecast for the American Eagle brand itself.
In other recent news, American Eagle Outfitters has experienced noteworthy developments. The company has raised its fourth-quarter operating profit forecast to approximately $135 million, a jump from the previous estimate of $125 million to $130 million. This revision comes on the back of stronger-than-expected holiday sales, which surpassed initial projections with a low single-digit increase, as opposed to the forecasted 1% rise.
American Eagle Outfitters has also been active in share repurchases, buying back 1.5 million shares in the fourth quarter. The company is tracking a 2% increase in comparable sales for the fourth quarter, slightly above the previously guided 1%. This growth is credited to a mid-single-digit comp at Aerie and a marginally positive comp at American Eagle.
Analysts from various firms have given their take on the company's performance. Citi maintains a Neutral rating on American Eagle with a steady price target of $21.00. Raymond (NS:RYMD) James initiated coverage on the retailer with a Market Perform rating, projecting earnings per share of $1.69 and $1.82 for fiscal years 2024 and 2025, respectively. Morgan Stanley (NYSE:MS) maintained an Underweight rating but reduced the stock's price target to $15.00, citing concerns about gross margin performance. These are among the recent developments concerning American Eagle Outfitters.
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