American Eagle Outfitters Could Soar In The Second Half Of 2016; BMO Upgrades


27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.


BMO Capital Markets has upgraded American Eagle Outfitters

ENTER TO WIN $500 IN STOCK OR CRYPTO

Enter your email and you'll also get Benzinga's ultimate morning update AND a free $30 gift card and more!

(NYSE: AEO) to Outperform from Market Perform on the stock's pullback and the upcoming solid third-quarter results, with outperformance expected in the fourth quarter and continuing into the spring season.

"Nearly halfway through the key fall season, our field research and data mining point to continued product improvement and market share gains despite ongoing promotional activity around them. In light of the stock's pullback over broader sector concerns, we see meaningful upside to the shares," analyst John Morris wrote in a note.

Morris noted that American Eagle is trading at the low end of its forward multiple range, likely due in part to Aeropostale Inc (OTC: AROPQ)'s aggressive promotions ahead of its store closings. While this is a near-term headwind, the analyst expects it to subside once Aeropostale is done with its closures.


FREE REPORT: How To Learn Options Trading Fast

In this special report, you will learn the four best strategies for trading options, how to stay safe as a complete beginner, ​a 411% trade case study, PLUS how to access two new potential winning options trades starting today.Claim Your Free Report Here.


Upgrade Justification

Following are the key supports for the upgrade thesis:

    "American Eagle is the denim destination in an up-trending denim cycle, driving traffic improvement and margin upside."
  • "We see strength across the product assortment, beyond denim, in other bottoms classifications and selected tops categories (knits and sweaters), boding well for the more seasonable fall/Holiday."
  • "Our proprietary data mining shows improvement in the breadth and depth of markdowns with higher pricing architecture on last year's increases, indicating potential better-than-expected merchandise margins."
  • "We expect direct competitors such as Abercrombie & Fitch Co. (NYSE: ANF) are losing market share to American Eagle due to their own mis-execution."
  • "American Eagle's continued growth opportunity from its aerie division and improvement from innovation in the men's category."
  • "An easier Q4 comparison in comps and margins to last year's hiccup.
  • "For the spring, the competitive backdrop improves as we estimate competitors will close over 500 stores, along with Victoria's Secret (L Brands Inc (NYSE: LB)) planned exit of the swim category."

Accordingly, the analyst raised his fourth-quarter EPS estimate to $0.47 from $0.45, putting it above consensus. In addition, Morris also increased his CY2017 EPS estimate to $1.50 from $1.40.

Further, Morris hiked his price target to $21 from $18, while the stock closed Friday's trading at $17.47.

At last check Monday morning, American Eagle was up 2.78 percent at $17.96.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.


Posted In: Analyst ColorLong IdeasNewsUpgradesPrice TargetAnalyst RatingsMoversTrading IdeasBMO Capital MarketsJohn Morris