UBS reiterates Buy rating on American Eagle stock ahead of Q2 results

Investing.com - UBS has reiterated its Buy rating and $19.00 price target on American Eagle Outfitters (NYSE:AEO) ahead of the retailer’s second-quarter earnings report, due in 8 days. Currently trading at $12.34, AEO shows a positive outlook with 3 analysts recently revising earnings estimates upward. According to InvestingPro analysis, the stock appears slightly undervalued based on its Fair Value assessment.

The investment bank believes American Eagle’s second-quarter performance was in line with sell-side expectations, based on its market checks. UBS notes that the third quarter has shown improvement, attributing this to the Sydney Sweeney marketing campaign. The company maintains strong fundamentals with a 36.9% gross profit margin and has consistently paid dividends for 22 consecutive years.

Key questions remain about the sustainability of momentum generated by the Sweeney campaign and the company’s overall earnings outlook. UBS expects the upcoming earnings report will not significantly change sell-side EPS estimates or market sentiment.

The firm identifies potential upside from American Eagle brand sales, while flagging possible downside risks from Aerie sales performance and tariffs. UBS also notes uncertainty surrounding the company’s forward guidance.

Options markets are pricing in a potential 10% share price movement following the earnings announcement, compared to the historical average move of 7.3% for similar events.

In other recent news, American Eagle Outfitters has been the subject of various developments. TD Cowen has raised its price target for the company to $13.00 from $11.00, maintaining a Hold rating, due to improving sales trends. The firm highlighted that a higher inflow of new products has led to better sales performance, suggesting that second-quarter 2025 comparable sales growth could reach at least -2%, slightly better than management’s guidance of -3%. Additionally, the company has reportedly hired external crisis communications specialists from Actum to manage backlash from its recent "Sydney Sweeney Has Great Jeans" advertising campaign. This campaign, featuring actress Sydney Sweeney, initially led to a notable rise in American Eagle’s stock, with shares jumping 16% in premarket trading after the announcement. The campaign aims to reinforce American Eagle’s position as a leading jeans brand for Gen Z, featuring over 200 fits of jeans. Despite the backlash, the campaign has generated significant buzz, particularly on platforms like Reddit. These developments reflect a dynamic period for American Eagle Outfitters as it navigates both market and public relations challenges.

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