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Why American Eagle (AEO) Might be Well Poised for a Surge

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American Eagle Outfitters (AEO - Free Report) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this teen clothing retailer, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for American Eagle, as there has been strong agreement among the covering analysts in raising estimates.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The earnings estimate of $0.43 per share for the current quarter represents a change of +151.19% from the number reported a year ago.

Over the last 30 days, the Zacks Consensus Estimate for American Eagle has increased 86.41% because seven estimates have moved higher compared to no negative revisions.

Current-Year Estimate Revisions

The company is expected to earn $1.85 per share for the full year, which represents a change of +825% from the prior-year number.

The revisions trend for the current year also appears quite promising for American Eagle, with six estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 17.7%.

Favorable Zacks Rank

Thanks to promising estimate revisions, American Eagle currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

American Eagle shares have added 16% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.


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