American Eagle Outfitters (AEO) - Get Report  rose 1.8% to $16.84 Wednesday after an analyst from DA Davidson initiated coverage of the apparel store chain with a buy rating and a $21 share price target.

In a note to investors, analysts John Morris said that the Pittsburgh-based company was an "innovative competitor" with "on-point messaging."

Morris said that he sees American Eagle Outfitters having a strong fall third quarter and a potential earnings beat in the fourth quarter with the momentum continuing into spring.

"American Eagle, one of the strongest brands in the young adult market, has significant growth potential ahead with its Aerie brand, and rising SG&A (selling, general and administrative) cost pressures should begin receding in the back-half," Morris wrote. "Additionally, as the denim destination for teens, AEO is best positioned to capitalize on the ongoing resurgence in the denim cycle."

Morris added that "AEO's price pullback begins to make it attractive and we suggest investors begin to build positions."

Morris also said that AEO is exploring a new partial line of products with Seventh Sense, which may turn into a partnership with the possibility of debuting a wider assortment this fall.

"Seventh Sense is a botanical therapy company that offers a range of body care and wellness products infused with CBD," Morris wrote. "Many of their products market towards muscle soreness, sleep deprivation, and daily care through CBD lotions and oils."

While it is unclear how this partnership will evolve, Morris said that "it does represent AEO's proactive approach to diversify their product offerings."

Earlier this month, American Eagle Outfitters reported stronger-than-expected second-quarter earnings, but noted that comparable-store sales slowed due in part to a delayed back-to-school shopping season.

American Eagle said adjusted earnings for its fiscal second quarter were 39 cents a share, up from 34 cents a share for the same period last year and well ahead of the Wall Street consensus forecast of 32 cents. Revenue rose 8% to $1.04 billion, just ahead of analysts' estimates of $1 billion.

Same-store sales, American Eagle said, rose 2% from last year, but trailed Wall Street forecasts of just over 3%. The company's current-quarter forecast of earnings in the range of 47 cents to 49 cents per share also fell short of the Refinitiv forecast of 52 cents.