On Monday, American Eagle Outfitters (NYSE:AEO) was added to JPMorgan (NYSE:JPM)'s Positive Catalyst Watch List, signaling potential upcoming positive performance.
JPMorgan raised its fourth-quarter earnings per share (EPS) estimate for American Eagle to $0.51, surpassing the Street's expectation of $0.49. This adjustment was made in light of an anticipated 12.0% year-over-year revenue growth, which is higher than the Street's forecast of 11.1%, and a gross profit margin (GPM) of 37.1%, also above the Street's projection of 36.7%.
The optimism from JPMorgan comes after American Eagle management's recent update, where they preannounced holiday revenues showing an 8% increase and carried the momentum into early January. They also upgraded their fourth-quarter revenue guidance to a low double-digit year-over-year increase, which is an improvement from the prior forecast of high single-digit growth.
The holiday sales figures included a high single-digit rise in American Eagle revenues, surpassing the 2% sales growth in the third quarter, and a low-teen increase in Aerie revenue, compared to the 12% growth seen in the previous quarter. Additionally, the company's fourth-quarter operating profit forecast was raised to $130 million, up from the prior guidance of $105-115 million.
JPMorgan's analysis suggests that the sequential acceleration in American Eagle's performance can be attributed to product assortments that are resonating well with customers in both women's and men's categories. Specifically, the women's flowy bottoms and denim, as well as the men's active 24/7 collection, including joggers and shorts, have been highlighted as areas of strength.
Furthermore, data from HundredX indicates a notable improvement in net purchase intent for the American Eagle brand in the fourth quarter, which is approximately 180 basis points higher relative to the trailing 12-month average. This uptick is driven by an inflection in 'Styles' and 'Sizes & Fit,' which have both seen improvements of about 340 basis points during the holiday season compared to the trailing 12-month average.
These enhancements are believed to reflect the recent merchandising changes within the women's bottoms business. Aerie's net purchase intent also saw an increase of approximately 230 basis points during the fourth quarter compared to the trailing 12-month average, driven by a better perception of styles.
InvestingPro Insights
Following the positive sentiment from JPMorgan, American Eagle Outfitters (NYSE:AEO) demonstrates a robust financial profile according to the latest InvestingPro data. With a market capitalization of $4.61 billion, the company trades at an attractive P/E ratio of 20.86, which is expected to adjust to a lower 18.15 in the last twelve months as of Q3 2024. This is complemented by a PEG ratio of 0.26, indicating that the stock may be undervalued relative to its earnings growth. The company's revenue growth further corroborates JPMorgan's optimistic view, showing a 1.54% increase over the last twelve months as of Q3 2024, with a quarterly uptick of 4.87% in Q3 2024.
One of the InvestingPro Tips highlights that American Eagle has maintained dividend payments for 21 consecutive years, which is a testament to its financial stability and commitment to shareholder returns. This is especially significant given the company's dividend yield of 2.14% as of Q3 2024, despite a dividend growth decrease of -30.56% in the same period. Additionally, the company's stock has shown a strong return over the last three months, up 40.93%, which aligns with JPMorgan's positive outlook.
For readers looking to delve deeper into American Eagle's financial health, InvestingPro offers additional insights. There are 14 more InvestingPro Tips available, which can be accessed by visiting https://www.investing.com/pro/AEO. To enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain a comprehensive understanding of American Eagle's potential for growth.
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