NEW YORK (TheStreet) -- Shares of American Eagle Outfitters Inc. (AEO) are down 4.25% to $12.39 in morning trading after the company was downgraded to "equal weight" from "overweight" at Barclays on Monday.
The firm lowered the price target for the apparel and accessories retailer to $11 from $15.
Barclays said it lowered American Eagle Outfitters' rating because U.S. Retail Softline group changed to Negative outlook from Positive, and AEO is trading at much richer valuation than other specialty retailers, making downside risk heightened.
"We still believe that AEO is the best positioned teen retailer given its leadership in chase fashion, but industry pressures are difficult to overcome," said Barclays U.S. Retail Softlines analyst Matthew McClintock.
Separately, TheStreet Ratings team rates AMERN EAGLE OUTFITTERS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMERN EAGLE OUTFITTERS INC (AEO) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- 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 0.70 is somewhat weak and could be cause for future problems.
- Net operating cash flow has increased to $33.98 million or 16.39% when compared to the same quarter last year. Despite an increase in cash flow, AMERN EAGLE OUTFITTERS INC's average is still marginally south of the industry average growth rate of 20.78%.
- AEO, with its decline in revenue, slightly underperformed the industry average of 1.5%. Since the same quarter one year prior, revenues slightly dropped by 2.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- 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, AMERN EAGLE OUTFITTERS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for AMERN EAGLE OUTFITTERS INC is currently lower than what is desirable, coming in at 33.43%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.81% trails that of the industry average.
- You can view the full analysis from the report here: AEO Ratings Report