On Thursday, CFRA raised its rating on shares of American Eagle Outfitters (NYSE:AEO) from Sell to Hold, while maintaining the price target at $20.00. The adjustment follows American Eagle's recent financial performance, which included a normalized second-quarter earnings per share (EPS) of $0.39, surpassing consensus estimates by $0.01, and revenue of $1.29 billion, slightly below the expected $1.30 billion.
The upgrade reflects a positive shift in the company's quarterly results, with American Eagle posting a year-over-year (Y/Y) revenue increase of 8% and comparable store sales growth of 5%. Aerie, a brand under the American Eagle umbrella, also reported a 9% increase in revenue and a 4% rise in comparable store sales. The second quarter saw the company's gross margin expand by 90 basis points Y/Y to 38.6%, primarily due to favorable product costs.
CFRA's analyst highlighted the company's improved financial guidance, noting that American Eagle raised its operating income forecast to the higher end of its previous range. The firm's decision to upgrade the stock rating takes into account the company's valuation, which is now seen as more reasonable at 11.5 times CFRA's fiscal year 2026 EPS estimate.
In terms of future earnings projections, CFRA has adjusted its fiscal year 2025 EPS estimate upwards by $0.05 to $1.65, while keeping the fiscal year 2026 estimate unchanged at $1.75.
The price target is based on 11.4 times the January fiscal year 2026 EPS estimate, which is slightly below the company's three-year average forward price-to-earnings (P/E) multiple of 11.7 times. This valuation reflects the analyst's caution regarding the weaker second-half guidance, despite a strong start to the year, and a gross margin expansion that trails behind peers.
In other recent news, American Eagle Outfitters Inc. reported second quarter revenue of $1.3 billion, slightly below the consensus estimate of $1.31 billion. Adjusted earnings per share were reported at $0.39, aligning with analyst forecasts. The company's revenue saw an 8% year-over-year increase, supported by a 5% rise in comparable sales at its namesake brand and a 4% comp sales increase at Aerie.
CEO Jay Schottenstein commented on the company's progress, stating that their Powering Profitable Growth strategy has had a strong start, setting them on track to reach the high end of their prior operating profit outlook for 2024.
Looking ahead, American Eagle anticipates an operating income between $120 million and $125 million for the third quarter. The company has also raised its full-year operating income guidance to a range of $455 million to $465 million.
Following these developments, analysts at Citi commented on the mixed results and updated guidance. Despite expecting shares to trade lower, they believe the downside to shares is likely limited due to the prevailing negative sentiment on the stock. These are among the recent developments for American Eagle Outfitters Inc.
InvestingPro Insights
As American Eagle Outfitters (NYSE:AEO) navigates through its financial year, real-time data and analysis from InvestingPro offer valuable context to the recent rating update by CFRA. With a current market capitalization of approximately $4.13 billion and a P/E ratio that has adjusted to 12.67 over the last twelve months, the company's valuation presents an intriguing picture for investors. Notably, American Eagle is trading at a low P/E ratio in relation to its near-term earnings growth, suggesting a potentially undervalued stock.
InvestingPro data also highlights a solid revenue growth of 6.16% over the last twelve months as of Q1 2025, with a consistent gross profit margin of 39.19%. These figures underscore American Eagle's ability to maintain profitability, as reflected in the 6.33% return on assets during the same period. Moreover, the company's commitment to shareholder value is evident through its dividend payments, which have been maintained for 21 consecutive years, boasting a dividend yield of 2.3% in 2024.
InvestingPro Tips for American Eagle further reveal that analysts have revised their earnings estimates upwards for the upcoming period, and the company is expected to remain profitable this year. With these positive indicators, and considering that American Eagle operates with a moderate level of debt and has liquid assets exceeding short-term obligations, the company's financial health appears stable. For readers interested in a deeper analysis, InvestingPro offers an additional 6 tips on American Eagle, providing a more comprehensive investment outlook.
The insights from InvestingPro align with CFRA's revised outlook, offering investors a nuanced understanding of American Eagle's financial position and future potential. With the next earnings date set for August 29, 2024, investors will be keen to see if the company's performance aligns with these favorable metrics and projections.
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