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Bull of the Day: American Eagle Outfitters (AEO)

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The struggles of traditional retailers have been well-documented, and basically no mall-based chains have been immune to the industry-shifting changes in consumer shopping habits. Nevertheless, some companies have adapted better than others. American Eagle Outfitters (AEO - Free Report) is one of those companies.

American Eagle Outfitters is a specialty retailer of casual apparel, accessories, and footwear for men and women between the ages of 16 and 34. The company sources, designs, and markets a line of clothing classics like jeans, khakis, and T-shirts under its American Eagle Outfitters and AE brand names for exclusive sale in its stores and e-commerce marketplaces.

Two weeks ago, American Eagle reported quarterly earnings that missed our consensus estimate. However, the report included several encouraging results and solid guidance. Shares have surged about 13% since the earnings announcement. This report also ushered in a number of positive estimate revisions, helping the stock earn a Zacks Rank #1 (Strong Buy).

Latest Earnings Results

American Eagle reported its third-quarter earnings results on December 6. The company posted earnings of 37 cents per share, which missed our consensus estimate of 39 cents and slumped about 9.8% year-over-year.

However, total net revenues increased about 2.1% and marked record quarterly sales for the company. Consolidated comps increased 3%—an improvement to the 2% comps growth witnessed in the year-ago period. These Q3 results represented the company’s 11th consecutive quarter of positive comps.

Even more importantly, American Eagle’s e-commerce business exhibited impressive expansion. Online sales exhibited growth in the high teens and represented about 25% of the company’s total revenues.

But American Eagle did mention some positive trends at its brick-and-mortar locations. In fact, management said that traffic and transactions improved in the quarter. Brand wise, comps rose 19% at the company's aerie stores and inched up 1% at AE brand outlets.

The company also noted that its positive momentum continued into the fourth quarter, with sales of Black Friday and Cyber Monday exceeding expectations. American Eagle anticipates Q4 comps to increase in the mid-single digits. Earnings are expected to fall in the range of $0.42 to $0.44 per share.

Estimate Revisions and Key Stats

As we can see, estimates have been improving on the back of universal revision agreement. Analysts clearly agree that American Eagle’s current quarter will be strong, but that sentiment extends into the upcoming fiscal year, which implies that the company’s remarkable momentum should continue.

As mentioned, shares of AEO have been surging since its report. However, the stock is still showing signs of being undervalued and is currently sporting an “A” grade for Value in our Style Scores system. The company’s P/E ratio of 16.38 is better than the “Retail - Apparel and Shoes” industry average, and its P/S of 0.92 is within the ideal range for value investors. Investors should be encouraged to see this opportunity to buy on the cheap while the stock is still moving higher.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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