On Friday, CFRA maintained its Sell rating on shares of American Eagle Outfitters (NYSE:AEO) with a steady stock price target of $20.00. The firm's stance comes despite American Eagle reporting a normalized Q1 earnings per share (EPS) of $0.34, up from $0.17 in the same period last year, and exceeding consensus estimates by $0.06. The apparel retailer's revenue for the quarter reached $1.14 billion, slightly missing the forecast by $8 million.
American Eagle's first-quarter performance showcased a year-over-year growth in revenues, with its Aerie brand seeing a 4% increase and the American Eagle brand an 8% increase. The company's gross margin improved significantly, rising 240 basis points to 40.6%.
This uptick was attributed to effective inventory management, a shift to a more profitable clearance strategy, and reductions in product and transportation costs. Inventory levels were up 9% from the previous year to $681 million, with a 10% increase in units.
Despite the positive quarterly figures, CFRA's outlook remains cautious. The firm has kept its earnings per share estimates for fiscal years 2025 and 2026 unchanged at $1.60 and $1.75, respectively. The price target of $20.00 is based on 12.5 times the firm's fiscal year 2025 EPS estimate, which is slightly above American Eagle's three-year average forward price-to-earnings (P/E) multiple of 12.1x.
CFRA's analysis indicates that growth at the Aerie brand may be decelerating and that American Eagle continues to fall short of its competitors in several operational metrics. The firm's bearish view is reinforced by the company's shares trading above 14 times CFRA's fiscal year 2025 EPS estimate. Moreover, American Eagle has retained its full-year operating income guidance at a midpoint of $455 million.
InvestingPro Insights
While CFRA maintains a cautious stance on American Eagle Outfitters, real-time data from InvestingPro presents a more nuanced picture. According to InvestingPro, six analysts have revised their earnings upwards for the upcoming period, suggesting that the market sentiment may be more optimistic than CFRA's sell rating implies.
American Eagle is trading at a low P/E ratio relative to near-term earnings growth, with a current P/E ratio of 19.84 and an adjusted P/E ratio for the last twelve months as of Q1 2023 at 13.74. This could indicate that the stock is undervalued given its growth prospects.
Moreover, American Eagle has demonstrated a commitment to returning value to shareholders, having maintained dividend payments for 21 consecutive years, with a current dividend yield of 2.25%. The company's dividend growth over the last twelve months was 25.0%, reflecting its financial health and potential for income investment. With a market capitalization of $4.29 billion and revenue growth of 6.16% in the last twelve months as of Q1 2023, the company shows signs of steady financial performance.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available, offering insights such as the company's liquid assets exceeding short-term obligations and operating with a moderate level of debt. To explore these further and make more informed investment decisions, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This code unlocks access to comprehensive financial data and expert analysis, including a total of 7 additional InvestingPro Tips for American Eagle Outfitters.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.