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American Eagle Outfitters (NYSE:AEO) was downgraded from Neutral to Underperform by a BofA analyst on Tuesday.
AEO shares are down more than 8% at the time of writing.
The analyst also cut the firm’s price target on the stock to $8 from $13 per share, telling investors they expect near-term results to fall short of expectations, given their view that improving trends in the second half of the year could be challenging to hit as they “now bake in a recession” as the base case scenario.
“We are lowering our F22/F23 EPS estimates by 24%/35% to $1.01/$1.14 to reflect lower sales and steeper gross margin declines (offset by SG&A cuts),” said the analyst. “Our updated EPS estimates are 11%/19% below Visible Alpha consensus. Consensus doesn’t fully reflect the capital actions announced post 1Q, in our view (we previously increased our estimates 10%/17% after an ASR and debt conversion, see report).”
The analyst added that they see a risk of management missing numbers again, given waning demand from inflation and a continued shift from athleisure into occasion wear. In addition, the analyst stated BofA’s decelerating BAC aggregated debit/credit card spending data in the teen clothing category (-14%/-15% y/y in May/June compared to -9% in April) supports their view.
