Oppenheimer Previews American Eagle Outfitters, Says Abercrombie & Fitch Continues To 'Erode'

Oppenheimer commented on American Eagle Outfitters AEO Monday and addressed questions regarding "whether the teen/young adult retail model" is sustainable given the "onslaught of fast-fashion/online." The firm also raised its price target on the stock from $14 to $17 and maintained an Outperform rating.

Analysts Anna Andreeva and Janet Lynne Knopf felt that "AEO's model is differentiated from typically lower quality fast-fashion players" and that recent consolidations and bankruptcies opened up $1 billion in potential market share for the company.

Andreeva noted that capacity consolidation had just begun in the industry and that "healthy brands" such as AEO should benefit from the trend.

The analysts cautioned, however, that AEO was "not immune to fast fashion" but felt that "AEO could improve tops and capture additional market share," while leading to an additional $400 million in revenues.

Intimate concept Aerie held the opportunity for AEO "to dominate in another ‘moat' category," according to the analysts.

Aerie positively comped "for three quarters and accelerated over holiday to LDD" and the firm estimated "$0.20-0.25 in potential EPS power--as AEO closes less profitable stand-alone stores and moves to side-by-side concept."

Looking at the EPS heading into its earnings report on Wednesday, the analysts believed the company's products continued to resonate, even with promotions pulled-back. Andreeva expected the 1Q15 guidance to be close to the the Street at $0.06.

As far as competitor Abercrombie & Fitch Co. ANF was concerned, Andreeva thought the brand continued to "erode domestically and internationally," and lowered its 2015 estimated EPS from $1.80 to $1.35, below Street estimates of $1.68.

American Eagle Outfitters recently traded at $14.79, down 0.94 percent.