BofA reiterates Underperform on American Eagle as Aerie unlikely to offset struggles at parent

BofA Securities has recommenced coverage for American Eagle Outfitters Inc. (AEO) on the NYSE, assigning the stock an "underperform" rating. The firm has set a price target of $16.00, citing uncertainty surrounding American Eagle’s comparable sales trajectory and pressure from investments, which are expected to limit upside potential.

The firm anticipates that American Eagle sales will not turn positive until fiscal 2027, while comparable sales at Aerie are projected to normalize, and investments aimed at supporting growth will negatively impact margins. The $16 price target is based on a 4x EV/EBITDA multiple, indicating a discount compared to mall-based peers.

Currently, AEO is trading at $16.16, with an EV/EBITDA ratio of 6.94 and a P/E ratio of 10.06. Despite this bearish outlook, InvestingPro analysis suggests the stock is undervalued at its present level, with a PEG ratio of 0.17, which indicates an attractive valuation relative to growth. BofA Securities has also highlighted the company's long-standing dividend record, with AEO having paid dividends for 23 consecutive years and currently yielding 3.07%.

The discount to AEO's current price is attributed to its more muted growth outlook in comparison to its retail peers. The stock has suffered a 35% decline over the past six months, signaling investor concerns about the company's near-term prospects.