American Eagle Outfitters: We Expect Short-Term Underperformance

Summary

• In two out of three periods which were characterized by low consumer confidence in the last 20 year, AEO underperformed the broader market.
• Downside risk may still exist due to macroeconomic headwinds, including elevated energy prices and the geopolitical tension in the Eastern European region.
• Based on a set of price multiples, AEO's stock appears to be trading at a discount compared to the consumer discretionary sector median.
• A dividend yield of more than 6% combined with consistent share repurchase programs also appears attractive.
• We currently rate AEO as "hold."

Justin Sullivan

American Eagle Outfitters, Inc. (NYSE:AEO) has lost more than 50% of its market value year to date, while the broader market has only declined by about 19%.

In our opinion, the underperformance may last in the upcoming quarters. However, there are

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

Past performance is not an indicator of future performance. This post is illustrative and educational and is not a specific offer of products or services or financial advice. Information in this article is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. This article has been co-authored by Mark Lakos.