American Eagle Stock To Trade Higher Post Q4?

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Trefis
AEO: American Eagle Outfitters logo
AEO
American Eagle Outfitters

American Eagle Outfitters (NYSE: AEO), which sells men’s and women’s apparel and accessories under the American Eagle, Tailgate, Todd Snyder, and Aerie brands, is scheduled to report its fiscal fourth-quarter results on Wednesday, March 2. In the upcoming Q4, we expect the company’s stock to likely trade higher with revenues and earnings beating consensus. In a recent update, AEO commented that it will hit its fiscal 2023 financial targets two years ahead of schedule. Thanks to strong holiday sales in 2021, it expects to report at least $600 million in operating income for fiscal 2021, with an operating margin of at least 10%. The company previously was hoping to generate $550 million in operating income, with a 10% margin, in 2023. That said, the company is now aiming to generate $800 million in operating income in fiscal 2023, with an operating profit margin of 13.5%.

The company’s newer Aerie brand contributed considerable growth and its once-struggling American Eagle brand is now steadily profitable so far in fiscal 2021. Going forward, we expect Aerie to continue its growth trajectory, with revenues likely increasing to $1.7 billion for the full year FY 2021. As such, the women’s intimate wear market of $16 billion is a huge opportunity for Aerie to expand further.

Our forecast indicates that American Eagle Outfitters’ valuation is around $29 a share, which is almost 38% higher than the current market price. Look at our interactive dashboard analysis of American Eagle Outfitters Earnings Preview: What To Expect in Q4? for more details.

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1) Revenues expected to be slightly above consensus estimates

Trefis estimates AEO’s FQ4 2021 revenues to be $1.56 Bil, slightly above the consensus estimate. For the fourth quarter of its fiscal 2021 (ended Jan 31), AEO now expects revenue to be up from a year ago by a percentage in the mid-to-high-teens, and up from the fourth quarter of fiscal 2019 by a percentage in the mid-teens. 

American Eagle Outfitters had sales of $1.27 billion in the third quarter of 2021, up 14% year-over-year (y-o-y) and 19% from Q4 2019, before the pandemic. Notably, sales at the retailer’s Aerie nameplate, rose 28% y-o-y after posting 34% growth the prior year. Meanwhile, sales at its namesake brand bounced back, up 21% following an 11% decline y-o-y between 2020 and 2019.

(2) EPS likely to beat consensus estimates comfortably

AEO’s FQ3 2021 earnings per share (EPS) is expected to be $0.40 per Trefis analysis, 14% ahead of the consensus estimate. AEO’s third-quarter earnings per share came to $0.74 compared to $0.32 a year ago and $0.48 in 2019. Going forward, the company expects its Q4 operating income to range between $90 million and $100 million, notwithstanding an $80 million increase in transportation costs due to Covid related supply chain disruptions.

(3) Stock price estimate higher than the current market price

Going by our American Eagle Outfitters’ Valuation, with an EPS estimate of around $2.33 and a P/E multiple of 12.6x in fiscal 2021, this translates into a price of around $29, which is 38% higher than the current market price.

It is helpful to see how its peers stack up. AEO Peers shows how American Eagle Outfitters compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Mar 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 AEO Return 0% -17% 39%
 S&P 500 Return 0% -8% 95%
 Trefis MS Portfolio Return 0% -10% 254%

[1] Month-to-date and year-to-date as of 3/1/2022
[2] Cumulative total returns since the end of 2016

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