Wedbush Morgan Sees ARO’s Risk/Reward As Favorable On Current Discounted Valuation

Analysts at Wedbush Morgan reiterate their "outperform" rating on Aéropostale Inc

, while reducing their estimates for the company. The target price for ARO has been reduced from $34 to $32. Wedbush Morgan says, “As we believe management’s below consensus Q3 guidance is primarily priced into the stock and the outlook provides the company with ample flexibility to maintain market share in the existing competitive landscape, we see the risk/reward as favorable on current discounted valuation.” “Longer term, we continue to believe margin opportunity exists given IT investments under way, improved productivity on store remodels (performance thus far is double the chain average), improving profitability from P.S. from Aéropostale (cost $0.03 in Q2) and rising DTC penetration (~4% in Q2). Further, we believe the announced New York Times Square flagship (expected opening in late Fall) could drive further brand awareness….ARO reported Q2 EPS of $0.46 vs. $0.38 LY, in line with our and consensus estimate of $0.46 on an already reported comp of +4%. Sales increased +9.2% to $494.7M vs. $453.0M LY with continued eCommerce sales growth of +32%. By gender, men’s comps rose +8% while women’s increased +2%. Key classifications showed continued momentum in knit tops (graphic tees) and shorts while the company built on woven trends from LY,” the analysts add. Wedbush Morgan has lowered its EPS estimates for 2010 and 2011 from $2.70 to $2.60 and from $3.05 to $2.90, respectively.