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Why American Eagle (AEO) Deserves a Place in Your Portfolio

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American Eagle Outfitters, Inc. (AEO - Free Report) is quite in favor with investors at the moment, riding on the back of its sturdy fundamentals and strategic initiatives. This is fairly evident, as the stock carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 11.8% with a VGM Score of “A”, thus offering a sound investment opportunity. More importantly the stock has a beta of 0.89. Investors should go with low-beta stocks, which are inherently less volatile than the markets they trade in. A low beta ranges from 0 to 1.

The volatility witnessed last month – due to the high-octane debate between the two presidential candidates, Donald Trump and Hillary Clinton, sudden surge in oil prices and the uncertainty surrounding the Fed’s rate hike decision – is most likely to prevail this month too. So a low-beta stock such as American Eagle may be a good addition to your portfolio given the current economic scenario. Undeniably, the stock is also not devoid of inherent strength. Let’s delve deeper.

Hidden Catalysts

American Eagle remains focused on strengthening its product assortments by adding more compelling brands, managing inventory levels diligently and improving its eCommerce business. Moreover, it remains committed toward enhancing store sales by rationalizing its brick-and-mortar store fleet that includes closing underperforming stores.

Further, the company possesses strong fundamentals, given its rewards program and strategic store expansion plans. Further, American Eagle has been constantly undertaking initiatives to reduce costs through supply chain efficiencies and its updated product allocation system. These efforts are anticipated to help the company boost its bottom line.

American Eagle has also been reinforcing its global presence for some time now after observing strong profitability at its overseas licensed stores, with little capital requirements. In line with this strategy, the company has fortified its presence in South Korea, Singapore, Greece, Peru, Chile, Bahrain and Oman. Apart from this, the company is striving to develop its omni-channel platform to reach customers in every possible way.

Positive Earnings Surprise History

American Eagle also appears alluring from the earnings perspective. This specialty retailer of casual apparel, accessories and footwear registered positive earnings surprises in the past seven quarters. In the trailing four quarters, the Pittsburgh, PA-based company outperformed the Zacks Consensus Estimate by an average of 9.3%, including a positive surprise of 9.5% delivered in the second-quarter fiscal 2016 results.

Results in the second quarter gained from the company’s constant efforts to enhance brands via innovations, making technological advancements as well as its commitment toward enriching consumer experience. The results also gained from continued strength noted in its American Eagle and aerie brands.

The better-than-expected results triggered an uptrend in the Zacks Consensus Estimate as analysts raised their estimates. Analysts polled by Zacks are convinced about the stock’s upbeat performance in the future. Over the past 60 days, the Zacks Consensus Estimate of $1.31 and $1.43 for fiscal 2016 and fiscal 2017 saw a jump of 3 cents and 6 cents, respectively.

AMER EAGLE OUTF Price and Consensus

AMER EAGLE OUTF Price and Consensus | AMER EAGLE OUTF Quote

Bottom Line

From the above analysis it is obvious that American Eagle is a stock that deserves a place in your portfolio. Investors may also consider other favorably ranked stocks such as Tilly's, Inc. (TLYS - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and Urban Outfitters Inc. (URBN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly's delivered an average positive earnings surprise of 73.7% over the trailing four quarters and has a long-term earnings growth rate of 15.5%.

The Children's Place delivered an average positive earnings surprise of 33.1% over the trailing four quarters and has a long-term earnings growth rate of 10.3%.

Urban Outfitters delivered an average positive earnings surprise of 6.7% over the trailing four quarters and has a long-term earnings growth rate of 15%.

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