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On Thursday, CFRA analyst Zachary Warring adjusted the price target for American Eagle Outfitters (NYSE:AEO) stock, reducing it to $17.00 from the previous $20.00, while still endorsing the stock with a Buy rating. The new target is set based on a forward price-to-earnings (P/E) multiple of 11.3 times the firm’s fiscal year 2026 (ending in January) earnings per share (EPS) estimate. This valuation reflects a slight discount to American Eagle’s three-year average forward P/E multiple of 11.5x, indicating a cautious stance due to the challenging macroeconomic environment. According to InvestingPro analysis, the stock appears undervalued, currently trading at a P/E of 9.31x and near its 52-week low of $11.33.
The analyst revised the EPS forecast for fiscal year 2026 downwards by $0.25, setting it at $1.50, and introduced an EPS estimate of $1.75 for fiscal year 2027. American Eagle recently reported normalized earnings for the fourth quarter (Q4) at $0.54 per share, compared to $0.61 in the same period last year, surpassing consensus estimates by $0.03. Revenue for the quarter was reported at $1.61 billion, slightly above the estimated $1.68 billion by $5 million. InvestingPro data shows the company maintains strong financial health with a current ratio of 1.57, indicating solid liquidity to meet short-term obligations.
In Q4, American Eagle’s different brands experienced varying levels of success, with Aerie’s comparable sales growing by 6% year-over-year and American Eagle brand sales increasing by 1%. The operating margin for the quarter improved by 50 basis points year-over-year to 8.9%, attributed to reduced markdowns and disciplined inventory management.
Looking ahead, American Eagle forecasts a low-single-digit decline in revenue for fiscal year 2026, anticipates gross margin compression, and projects operating income to be in the range of $360 million to $375 million. Additionally, the company has expanded its share buyback program by an additional 50 million shares.
Warring noted that American Eagle’s shares are currently trading at the lower end of their 20-year range and at a multiple of just 6 times the next twelve months’ (NTM) EPS estimates. The company has maintained dividend payments for 22 consecutive years, demonstrating consistent shareholder returns despite market volatility. He views the recent decline in share price as an excellent opportunity for investors to purchase shares. For deeper insights into AEO’s valuation and 12+ additional exclusive ProTips, visit InvestingPro.
In other recent news, American Eagle Outfitters has been in the spotlight following the release of its fourth-quarter financial results, which exceeded expectations in terms of revenue and earnings. Despite this strong performance, the company has issued guidance for the first quarter and the full fiscal year 2025 that falls below consensus estimates, citing challenges such as soft consumer demand and adverse weather conditions. Analysts have responded with varied adjustments to their outlooks. BMO Capital Markets reduced its price target to $15 while maintaining a Market Perform rating, highlighting concerns about consumer uncertainty and operational challenges.
Raymond (NSE:RYMD) James also maintained a Market Perform rating, noting the company’s strategic progress but emphasizing the need for consistent revenue and earnings growth. Jefferies cut its price target to $13 and retained a Hold rating, reflecting a cautious outlook due to anticipated declines in sales and operating income. Citi lowered its price target to $12 but maintained a Buy rating, pointing to challenges such as macroeconomic volatility and increased competition. Barclays (LON:BARC) took a more bearish stance, downgrading the stock to Underweight and reducing the price target to $10, citing factors like a weakening consumer base and declining mall traffic.
These developments indicate a period of uncertainty for American Eagle Outfitters, as the company navigates through a challenging retail environment. Investors and market observers will be watching closely to see how the company addresses these headwinds in the coming quarters.
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