TD Cowen cuts American Eagle stock price target on denim weakness

TD Cowen has reduced its price target on American Eagle Outfitters (AEO) shares to $16 from $18, while maintaining a Hold rating on the stock. AEO's shares are currently trading at $14.38, which is near its 52-week low of $14.05 and represents a 35% decline year-to-date. The firm is concerned about limited near-term upside in estimates, as AEO continues to face weak denim trends.

Aerie, AEO's intimates brand, is encountering increasingly difficult comparisons to contend with. The analyst believes management can stabilize the denim business through product and merchandising actions, but is doubtful these steps will lead to sustained brand momentum. The firm remains cautious about Aerie's ability to maintain its growth rates, with comparable growth expected to drop to 23% and 25% in the fourth quarter of fiscal 2025 and the first quarter of fiscal 2026, respectively.

Based on a fiscal year 2027 price-to-earnings ratio of approximately 8, the new $16 price target was established. The stock is considered undervalued at a price-to-earnings ratio of 8.95 and a price-to-earnings-to-growth ratio of 0.1, according to InvestingPro's analysis. AEO reported stronger-than-expected fiscal second-quarter earnings of $0.79 per share on revenue of $1.38 billion, surpassing analysts' projections of $0.22 per share on revenue of $1.37 billion.

However, investors focused on softer guidance and the profit boost's quality, resulting in a decline in the stock's price. UBS lowered its price target for AEO to $27 from $31 while keeping a Buy rating, praising Aerie as a growth brand with potential for customer acquisition and market share gains in the intimates sector.