Aerie Division's Prospects Have Analysts Bullish On American Eagle

American Eagle Outfitters AEO shares are moving higher despite reporting a third-quarter sales miss Wednesday.

The apparel retailer reported earnings of 48 cents per share, falling in line with analyst estimates. Sales came in at $1.004 billion, missing estimates by $16 million. The company also issued weak fourth-quarter earnings guidance, but a bright spot was Q3 comps, which were up 8 percent year-over-year.

Citi: Aerie An 'Attractive' Retail Growth Concept 

Citi analyst Paul Lejuez reiterated a Buy rating following the quarterly print and called shares extremely undervalued at current levels.

The analyst highlighted Aerie as a bright spot for the company, with comps accelerating sequentially to positive 32 percent in the quarter.

“Aerie’s Q3 strength reinforces our belief that it is one of the most attractive growth concepts in retail,” the analyst said. 

Citi estimates Aerie is worth approximately $2 billion.

American Eagle Sees Record Holiday Volumes

B Riley FBR analyst Susan Anderson also remains bullish on the company despite the sales miss, reiterating a Buy rating and $29 price target.

“We believe AEO is a winner in the teen space driven by on-trend and high-quality product, strong retail and digital initiatives, Aerie opportunities and expanding operating margin,” the analyst said. 

American Eagle saw record volumes over Thanksgiving and the Cyber Monday week while managing to contain promotional activity, Anderson said. She emphasized the success of the Aerie division, highlighting how the company has benefited from the body positive movement by using a diverse group of women in their marketing campaign.

“Beyond the success of the core intimates offerings, management continued to highlight the growing popularity of the apparel business."

Anderson said she believes Aerie is well on its way to hitting its $1-billion sales target and expects improved operating margins over the next several years. 

The Price Action 

American Eagle shares were up 1.37 percent at $19.29 at the time of publication Wednesday. 

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