Bear of the Day: American Eagle (AEO) - Bear of the Day
August 28 2013 - 3:30AM
Zacks
American Eagle (AEO), Zacks Rank #5 (Strong
Sell), faces the headwind of a weak profit outlook driven by
uncertainty over teen apparel demand, high teenage
unemployment, and shifts in purchasing patterns away from apparel
into durable items. On August 21st, the company
guided its Q3 earnings per share outlook substantially lower to the
$0.14 to $0.16 range compared to the then Zacks Consensus Earnings
per Share Estimate of $0.36.
Earnings estimates have plunged:
American Eagle will have to prove itself to the investment
community before buyers come running. FY 2014 and FY 2015
earnings per share estimates have been each cut 14 times over the
past 7 days, and the Zacks Consensus Earnings per Share Estimates
for FY 2014 and FY 2015 have been reduced by 24.6% to $0.89 and
19.8% to $1.41 respectively.
The trade is expecting a promotional and competitive environment
in the near term which could have margins and profitability under
pressure.
Valuation unexciting:
Even though earnings estimates have been reduced, the stocks is
trading at 14.1 expected 12 month forward earnings per share. This
is about in line with the 10 year median. Moreover, the PEG
ratio is 1.43 compared to a 10 year median of 1.07. American Eagle
does not look to be a value.
Cash flow conditions show deterioration:
In FY 2013, the company posted negative free cash flow after
dividend payment suggesting a deteriorating financial condition.
The weak profit picture may further hinder cash generation and
could have some ramifications for the dividend and/or capital
spending if the trend continues.
![](http://staticzacks.net/images/zacks/blogs/1377632415_scaled_425.jpg)
Technical support:
American Eagle has made lows in the $7 to $11 area in recent
years. Around $14.75, the stock may be rich from a chart
perspective and not on the radar screen of bottom fishers.
Alternatives:
Those looking for exposure to the apparel space may want to take
a look at Citi Trends (CTRN), Zacks Rank #1
(Strong Buy). Citi Trends is a value priced urban apparel
retailer. Its earnings estimates have been working higher
over the past 30 days, and it appears more strongly positioned in
the marketplace.
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
CITI TRENDS INC (CTRN): Free Stock Analysis Report
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