"AEO is validating our view that it is one of the winners in the battle for teen market share, as it had a solid start to holiday with better traffic than its peers on Black Friday weekend but with less promotional activity," analysts said.
"With improved product and expense and inventory discipline, we believe AEO has further opportunity to improve sales and margins over the next several years. [We] raise our price target based on greater confidence in further improvement in AEO's results," analysts added.
Shares of American Eagle Outfitters are down 13.54% to $11.94 today on heavy trading volume after the clothing retailer guided below analysts' EPS estimates for the fourth quarter.
Separately, TheStreet Ratings team rates AMERICAN EAGLE OUTFITTERS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMERICAN 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 good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. 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:
- Net operating cash flow has increased to $33.98 million or 16.39% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -10.81%.
- 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.
- AEO, with its decline in revenue, underperformed when compared the industry average of 9.1%. 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, AMERICAN 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 AMERICAN 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