American Eagle Outfitters Stock Downgraded (AEO)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- American Eagle Outfitters (NYSE: AEO) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow.

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Highlights from the ratings report include:
  • AEO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.77 is somewhat weak and could be cause for future problems.
  • AEO, with its decline in revenue, underperformed when compared the industry average of 6.8%. Since the same quarter one year prior, revenues slightly dropped by 5.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has decreased to $82.71 million or 47.02% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 68.3% when compared to the same quarter one year ago, falling from $78.61 million to $24.90 million.

American Eagle Outfitters, Inc., together with its subsidiaries, operates as an apparel and accessories retailer in the United States and Canada. American Eagle Outfitters has a market cap of $2.64 billion and is part of the services sector and retail industry. Shares are down 4.8% year to date as of the close of trading on Thursday.

You can view the full American Eagle Outfitters Ratings Report or get investment ideas from our investment research center.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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