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Why American Eagle (AEO) is an Amazing Stock to Own Now

American Eagle Outfitters AEO looks like a great stock to own over the short term.  AEO shares have rallied 10.7% higher since February, but shares still look attractive at current prices. 

The stock is a Zacks Rank #1 (Strong Buy), and it also has a VGM Score of “A”.  The VGM is a great tool because it takes a weighted average score across value, growth, and momentum metrics.  When the earnings-based Zacks Rank is coupled with a metric that captures overall fundamental strength, you’ve got a winning combination.

Solid Growth Metrics

American Eagle is a solid candidate in the clothing retail industry.  In spite of the rough 2015 for the broader retail industry, American Eagle managed to thrive.  While the company’s industry has a trailing twelve month ROE of 11.56%, AEO is way ahead, with an ROE of 18.66%.  American Eagle has a net margin of 6.19%, which isn’t particularly impressive until you see that the industry’s net margin is only 3.35%.  

American Eagle’s EPS is projected to grow by 12.77% this year.  AEO has current cash flow growth of 37.01%, while the industry lags behind, having a negative current cash flow growth of -1.3%.  It’s worth noting that American Eagle is pretty liquid over the short term, having a current ratio of 1.56. 

Still Cheap

American Eagle Outfitters trades at a forward PE of just 13.33, while the rest of the industry trades at a price-to-earnings multiple of 16.14.  AEO beats the industry on the EV/EBITDA valuation as well, trading at a multiple of just 5.74, compared to the sector’s average EV/EBITDA of 7.36.  American Eagle has a lot of sales power, and its price-to-sales of 0.84 demonstrates this well.  AEO has sales-to-assets of 2.03, which suggests that the company is operating efficiently.  There is value in this.

Earnings Momentum

American Eagle Outfitters has seen six positive earnings estimate revisions from analysts over the last 60 days for this quarter.  In that same time span, there hasn’t been a single revision in the downward direction.  Our EPS consensus has trended upwards over the last 90 days, going from a consensus estimate of $0.15 to $0.18. 

AEO has a good track record for beating our EPS consensus, and the company has topped our estimate in each of the last four quarters.  Over that time frame, the company has beaten our EPS estimate by an average of 15.79% per quarter.

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AMER EAGLE OUTF (AEO): Free Stock Analysis Report
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