Proactive Investors - American Eagle Outfitters Inc. (NYSE:AEO) shares rose on Wednesday after the stock was upgraded by Bank of America (NYSE:BAC) (BoA) analysts ahead of the retailer’s third quarter earnings report due on Tuesday, November 21.
American Eagle shares traded up 5.5% at US$19.66 on Wednesday afternoon.
The BoA analysts upgraded the stock to ‘Neutral’ from ‘Underperform’ as they see near-term momentum for upward estimates revisions driven by stronger-than-expected revenues.
They also upped their price objective on the stock from $12.50 to $19.
The analysts upgraded their 3Q earnings per share (EPS) estimate by 9% to $0.49 and full-year 2023 EPS estimate by 7% to $1.36 on their stronger sales and gross margin forecast.
They wrote that their 3Q EPS estimate implies 4.6% sales growth, 1% growth at American Eagle and 15% growth at its intimate apparel sub-brand Aerie.
Wall Street analysts expect 3Q EPS of $0.47 and a 2.8% year-over-year increase in sales to $1.28 billion.
“We were encouraged by the double-digit sales trends at Aerie in the third quarter to date [guided by management] and recognize this is a major inflection relative to year-to-date trends,” they wrote.
“We see upside potential to 4Q consensus total sales and forecast 7% growth compared to consensus 3.8%.”
However, the analysts cautioned that a slow holiday season posed a risk to their thesis.
“We maintain a relatively cautious view about the demand for apparel retailers this holiday and expect shoppers to seek value,” they wrote.
“We think the biggest near-term risk to AEO is a slowdown in sales trends and the inability to keep promotions controlled given deeper discounting pressure from peers. Over the next several quarters, the lack of progress on right-sizing selling, general and administrative expenses (SG&A) may hurt sentiment and limit upward revisions.”
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