NEW YORK (TheStreet) -- Shares of American Eagle Outfitters (AEO) are up 1.44% to $12.69 in pre-market trading after BMO Capital Markets upgraded the Pittsburgh, PA-based specialty retailer to "outperform" from "market perform" and raised its price target to $15 from $12.
"We are upgrading our rating on shares of AEO given the pullback in the stock on conservative 4Q guidance, coupled with improvements in holiday and potential for the momentum to continue into spring, along with a positive read-across from competitors' disarray," analysts said.
"Nearly half way through the key December holiday season, our field research points to product continuing to improve, and market share gains despite an ongoing reduction in promotions. In light of the stock's pullback following AEO's 3Q release, we see meaningful upside to the shares at current levels," analysts added.
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 expanding profit margins 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:
- 36.93% is the gross profit margin for AMERN EAGLE OUTFITTERS INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.05% trails the industry average.
- 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. Despite the fact that AEO's debt-to-equity ratio is low, the quick ratio, which is currently 0.62, displays a potential problem in covering short-term cash needs.
- AEO, with its decline in revenue, slightly underperformed the industry average of 8.9%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The share price of AMERN EAGLE OUTFITTERS INC has not done very well: it is down 14.39% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- 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.
- You can view the full analysis from the report here: AEO Ratings Report