Will This Price Target Reduction Hit Aeropostale (ARO) Stock Today?

NEW YORK (TheStreet) -- Aeropostale's (ARO) price target was lowered to $3.50 from $6 by Morgan Stanley on Friday. The firm also maintained an "underweight" rating for the retailer. Aeropostale was down 0.2% to $4.91 in early trading Friday.

"The stock has fallen 45% YTD and broke through our prior $6 price target after the company's fourth quarter earnings report. Our new price target is derived by applying a peer average 5x EV/EBITDA multiple to our 2018 estimate and discounting back at 20% after adjusting for debt," the firm said.

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Separately, TheStreet Ratings team rates AEROPOSTALE INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate AEROPOSTALE INC (ARO) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • 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 10377.8% when compared to the same quarter one year ago, falling from -$0.67 million to -$70.31 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, AEROPOSTALE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for AEROPOSTALE INC is currently extremely low, coming in at 12.97%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -10.49% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 59.89%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 8900.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • AEROPOSTALE INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AEROPOSTALE INC swung to a loss, reporting -$1.82 versus $0.43 in the prior year. This year, the market expects an improvement in earnings (-$1.69 versus -$1.82).
  • You can view the full analysis from the report here: ARO Ratings Report
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