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American Eagle: Time To Accumulate

Siddharth profile picture


  • The correction on American Eagle is a solid opportunity.
  • Aerie is the usual suspect in AEO's brilliant results.
  • American Eagle isn't like L Brands; pricing is backed by fundamentals. Maintain Buy.

I had a minimum target of $19.18 on American Eagle (NYSE:AEO) at the beginning of this year. The stock crushed that target within months, but after the correction yesterday, I think it is back to being attractive again.

Not much has changed so far as my assumptions are concerned. But since I did not anticipate a 12% growth in sales in the fourth quarter, my base for projection inched higher. I am persisting with my buy rating with a slightly enhanced target of $20.7 by December-end.

Q4 Review and Commentary

Net sales increased 12% to $1.23 billion. Aerie continued to be the usual suspect in American Eagle's record-breaking fourth quarter. As I had written in my previous piece as well, Aerie's usage of cotton, association with body positivity and affordable prices are making it a hit with millennials. And the brand posted an industry-leading 34% increase in comps to show for this imaging and execution.

The company also offered an interesting nugget of information on Aerie's brand potential:

I believe in the next two years, we can achieve over $1 billion. And when I look at Aerie, I look at the American Eagle and I see the progress that's being made in Aerie. And with the experience we have, I think this could become in the next few years a $2 billion, $3 billion brand. (Transcript)

The "next few years" phrase is confusing, so I simply halved the growth rate over the next three years. If we were to assume a 2% CAGR for rest of the company, total revenues would still have a CAGR of 6%. Therefore my assumption of a 6%-3% revenue growth taper could well be conservative.

Rest of AEO (mn $) 3295 3361 3428 3497 3567 3638
Growth 2% 2% 2% 2% 2%
Aerie (mn $)

This article was written by

Siddharth profile picture
My record can be checked the tipranks profile page - https://www.tipranks.com/bloggers/siddharth I have a Master’s degree in Physics and in my dissertation I worked on the utility of fractals in understanding chaos theory. The presence of a physicist is not without precedent in the financial world. I guess the considerable mathematical background gives us a decent advantage on Wall Street. As an individual, I have always been a hobbyist. So a lot of my free time these days revolves around building a predictive betting model. I find betting on sports (as an area of study) quite exhilarating from an academic point of view. It combines the best bits of math, finance, and sports into one super interesting field.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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