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On Friday, UBS analyst Jay Sole confirmed a Buy rating on American Eagle Outfitters (NYSE:AEO) shares with a steady price target of $19.00. Sole’s assessment comes despite anticipating a near-term decline in the company’s stock price due to a weaker-than-expected outlook for the second quarter. According to InvestingPro data, the stock has fallen even more dramatically, down 40.76% over the past six months, which aligns with Sole’s view of a compelling entry point for investors. The company has demonstrated long-term stability through its impressive 22-year streak of consistent dividend payments.
The analyst underscored the potential for American Eagle, predicting that the company could grow its annual earnings per share (EPS) at a low double-digit percentage. Current InvestingPro analysis shows the stock trading at 6.5 times earnings, even lower than Sole’s estimate, suggesting significant undervaluation compared to its Fair Value. The company maintains a "GOOD" Financial Health score, supporting Sole’s confidence in the brand’s ability to resume share gains, particularly for the Aerie line, and its effective cost control measures as evidenced in the first-quarter report. Discover more insights and 6 additional ProTips with an InvestingPro subscription.
Sole also highlighted that American Eagle’s long-term growth trajectory remains on course. He expects the company to experience an acceleration in sales growth as it adjusts its product assortment and benefits from normalizing weather patterns. This adjustment, according to Sole, should lead to revisions in EPS estimates and an expansion of the price-to-earnings (P/E) ratio.
In summary, the UBS analyst sees the current valuation of American Eagle Outfitters as an attractive buying opportunity. He believes that the company’s strategic adjustments and brand strength will lead to financial growth and a revaluation of the stock in the market.
In other recent news, American Eagle Outfitters reported a first-quarter adjusted loss per share of $0.29, which missed the analyst forecast of $0.11. Despite the earnings miss, the company’s revenue reached $1.1 billion, slightly exceeding expectations of $1.08 billion. The retailer faced a challenging quarter with a 5% decline in sales, leading to a $75 million inventory writedown. The gross margin was reported at 29.6%, with a gross profit of $322 million. American Eagle Outfitters has paused its full-year guidance due to market uncertainties, including a looming $40 million tariff burden in the second half of the year.
Citi analyst Paul Lejuez has adjusted the price target for American Eagle Outfitters, lowering it to $11.00 from the previous $12.00, while maintaining a Neutral rating. The company’s second-quarter guidance indicates ongoing challenges, with comparable sales expected to fall by 3% and gross margin projected to decline by approximately 300 basis points. Despite the challenges, American Eagle Outfitters is focusing on back-to-school preparations, aiming to clear inventory by the season. CEO Jay Schottenstein emphasized the company’s commitment to improving performance, while analysts continue to express concerns over the retailer’s near-term prospects.
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