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On Friday, CFRA analyst Zachary Warring upgraded shares of American Eagle Outfitters (NYSE:AEO) from Hold to Buy, maintaining a 12-month price target of $20.00. Currently trading at $12.58 with a P/E ratio of 10.5x, the stock has seen significant volatility. Warring’s assessment is based on an 11.4 times multiple of the fiscal year ending January 2026 (FY26) earnings per share (EPS) estimate, which aligns with the company’s three-year average forward price-to-earnings (P/E) multiple. The analyst believes that American Eagle deserves a low-double-digit multiple, even though it may be underperforming compared to some of its peers.According to InvestingPro, several key indicators suggest this stock warrants attention, with 11 additional ProTips available to subscribers.
The price target is rooted in the belief that the company’s valuation is attractive following a significant decline in share price. American Eagle shares have fallen 45% since October and are currently trading at just 7 times the next-12-month EPS estimates. This valuation is considerably lower than all of its historical averages. The company maintains strong fundamentals with a current ratio of 1.57 and has maintained dividend payments for 22 consecutive years, currently yielding 4.06%. Despite the company raising its fourth-quarter guidance in January, shares continued to trade lower.
Warring pointed out that American Eagle’s shares are now trading at a valuation that is below that of many department stores. This, according to the analyst, presents a buying opportunity as the company continues to grow EPS and comparable sales. The upgrade reflects CFRA’s view that the recent sell-off in shares is excessive and that the company’s current valuation does not reflect its growth potential.
The analyst reiterated the firm’s EPS estimates for fiscal years 2025 and 2026 at $1.60 and $1.75, respectively. The upgrade to a Buy rating indicates CFRA’s confidence in American Eagle’s prospects for recovery and growth, suggesting that the market may have overreacted to recent events affecting the stock’s performance.
In other recent news, American Eagle Outfitters has adjusted its fourth-quarter operating profit forecast to approximately $135 million, up from the prior range of $125-130 million, due to better-than-expected holiday sales. The company has reported a low single-digit increase in comparable sales for the quarter, with Aerie, its lingerie and activewear segment, experiencing mid-single-digit growth. Despite these positive developments, Citi analyst Paul Lejuez has reduced the price target for American Eagle to $13, maintaining a Neutral rating, and anticipates weaker first-quarter guidance compared to consensus estimates.
Morgan Stanley (NYSE:MS) has also downgraded the stock from Overweight to Equalweight, lowering the price target to $17, citing a more competitive environment. BofA Securities has adjusted its price target from $21 to $18, maintaining a Neutral rating while noting a shift in valuation multiples within the sector. The firm revised its fourth-quarter earnings per share estimate to $0.52, reflecting a gross margin that exceeded expectations, though it left the full-year 2025 EPS forecast unchanged at $1.81.
Analysts from Citi and BofA Securities have highlighted the challenges facing American Eagle’s core brand, despite growth in the Aerie segment. These recent developments indicate a complex landscape for the company as it navigates market dynamics and competitive pressures.
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