American Eagle Outfitters Has Revenue Upside Despite Retail Struggles, JPMorgan Says

Shares of American Eagle Outfitters Inc AEO have declined by 45% over the last 18 months versus a 33% gain in the S&P 500 index, of which the stock is a member, according to JPMorgan.

The American Eagle Outfitters Analyst: Matthew Boss upgraded American Eagle Outfitters from Neutral to Overweight and raised the price target from $12 to $17.

The American Eagle Outfitters Thesis: The company is likely to report a second-quarter loss of 14 cents per share, better than the Street’s expectation of a loss of 17 cents per share, Boss said in a Wednesday upgrade note. (See his track record here.)

American Eagle has upside to revenue estimates for the second quarter and the second half of the year, even assuming moderating brick-and-mortar productivity and e-commerce comps in June and July, the analyst said. 

JPMorgan's conservative merchandise margin estimate shows contraction of 225 basis points, with “rational promotional activity to date” being partially offset by inventory provisions of $60 million taken by American Eagle Outfitters in the first quarter, he said. 

For the Aerie brand, Boss estimated 16.1% comps in the second quarter, driven by the brand’s digital penetration and the uptrend in digital demand.

The American Eagle brand has a revenue base of more than $3 billion, with a high-single-digit margin profile, the analyst said.

Although he said he expects “moderating productivity tied to back-to-school/holiday COVID-19 related disruption,” Boss believes the brand will exceed peer performance “driven by newness and product assortment.”

AEO Price Action: Shares of American Eagle Outfitters were trading 2.68% higher to $11.87 at last check Wednesday. 

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Photo by Dwight Burdette via Wikimedia.