On Monday, Morgan Stanley updated its assessment of American Eagle Outfitters (NYSE:AEO), raising the price target to $19.00 from the previous $16.00. Despite the increase, the firm has maintained an Underweight rating on the stock.
The adjustment follows American Eagle's announcement of its long-term strategy and targets, which overshadowed its fourth-quarter earnings beat and a first-quarter and full-year guidance that exceeded expectations.
According to the firm, while American Eagle's long-term sales forecasts appear reasonable, the projected profitability target of around 10% may be overly optimistic. Concerns were raised about the potential for downward revisions to both near-term and future earnings per share (EPS), which supports the continuing Underweight stance on the stock.
American Eagle Outfitters recently reported a positive performance in its fourth quarter, with results surpassing analyst predictions. The company also provided initial guidance for the first quarter and the full fiscal year that was above market expectations. However, Morgan Stanley pointed out that the focus should be on the company's updated long-term strategy and targets rather than its recent performance.
The firm's analysis suggests that the risk of negative EPS revisions for both the near term and the out years is a significant factor in their valuation. The raised price target to $19.00 reflects a cautious outlook on American Eagle's profitability goals in the context of the competitive retail landscape.
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