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American Eagle Outfitters (AEO)

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Driven by strong top-line growth coupled with lower input and operating costs, American Eagle Outfitters' (AEO) earnings of $0.21 per share for second-quarter 2012 surged nearly 62% from the year-ago period, and came in line with the Zacks Consensus Estimate. In the quarter, American Eagle's adjusted net sales went up 11% year over year to $739.7 million, beating the Zacks Consensus Estimate of $738 million.

Bolstered by a strong quarterly performance, management raised its fiscal 2012 earnings guidance range to $1.33-$1.36 per share from $1.16-$1.22 forecasted earlier. Further, we remain impressed with the company's continued momentum in denim along with improved merchandise assortments in the women's business segment, which will likely augment its top-line performance and enhance gross margin.

Moreover, we believe the company's cost-saving initiatives and long-term growth strategy will not only provide financial flexibility, but will also help to drive value. Our target price of $26.00, based on 19.1x 2012 EPS, reflects this view.

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