Wunderlich Calls Their American Eagle Forecast 'Dooms Dayish'

American Eagle Outfitters AEO reported strong 1Q results and announced in-line guidance, despite tough comps. Wunderlich’s Eric Beder reiterated a Hold rating for the company, with a price target of $13. While stating that American Eagle has a strong business model, the analyst expressed concern regarding the company facing the toughest comps in +3 years and the very challenging environment.

Impressive 1Q Results

American Eagle reported its 1Q EPS at $0.22, beating the consensus expectation by $0.04 and representing more than 50 percent y/y growth. The company was able to “leverage higher-than-expected comps, strong fashion looks, lower average costs and slightly higher discounting levels to achieve better-than-expected operating leverage and solid results,” analyst Eric Beder wrote.

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Beder commented that the results were impressive on many levels, while adding that the comps of +6 percent was a “team effort,” with American Eagle up 4 percent and Aerie up 32 percent.

Looking Ahead

“After what has been a harrowing earnings season so far, in-line 2Q guidance of low single digit positive comps and EPS of $0.20 to $0.21 just may lead to a "short squeeze," driving upside for AEO,” the analyst stated.

Given that American Eagle faces a +11 percent comp as well as a tough environment, in case it is able to achieve its guidance, there would be no doubt that the company “has, by far, the best teen retailing model,” Beder commented.

Terming the forecasts as "dooms dayish," the analyst raised the EPS estimates for FY17 and FY18 from $1.11 to $1.20 and from $1.19 to $1.25, respectively. He said that while the estimates appear achievable, there seems to be limited upside to them.