American Eagle Is A Bright Spot In Apparel, Says Loop Capital

Investors are hard pressed to find a compelling opportunity in the apparel retail sector, but Loop Capital Markets said American Eagle Outfitters AEO is just that. 

The Analyst

Analyst Laura Champine initiated coverage of American Eagle Outfitters' stock with a Buy rating and $25 price target.

The Thesis

American Eagle is expected to perform well in 2018, as the specialty fashion retailer laps a down-to-flat comparison in the first half of 2018, Champine said in the initiation note. (See the analyst's track record here.) 

Compelling reasons exist to support a favorable outlook on American Eagle, including the company's positioning to take advantage of a fashion shift away from skinny jeans toward a higher waist style, Champine said. Denim is American Eagle's top category, and the retailer is likely the "single largest source for jeans" in the U.S., with a "particularly dominant" positioning among younger consumers, she said. 

The Aerie concept is "beating up on out of touch competitors" like Victoria's Secret, the analyst said. The concept has comped more than 20 percent for three consecutive years, and should continue growing its market share on the basis of a larger product line with more sizes and significant discounts, Champine said. 

American Eagle is likely to be one of the few retailers to show investors EBIT margin expansion this year, the analyst said: fiscal 2018 EBIT margins should expand by 30 basis points, as its product line now requires fewer markdowns.

Price Action

American Eagle shares were trading higher by 1.17 percent Friday afternoon. 

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