In today’s Daily Alert, Ford Equity Research analyst Richard Segarra recommends a clothing retailer with excellent metrics.
“American Eagle Outfitters (AEO, $21) is a retailer that operates stores in the U.S. and Canada and online at ae.com. Through its family of brands, the company provides clothing, accessories and personal care products. ...
“As of January 28, 2012, the company operated 911 American Eagle Outfitters stores, 158 aerie stand-alone stores and 21 77kids stores. The company also had 21 franchised stores operated by its franchise partners in 10 countries. ... We project that AEOS will strongly outperform the market over the next six to 12 months. This projection is based on our analysis of three key factors that influence common stock performance: earnings strength, relative valuation, and recent price movement.
“Earnings strength is very positive. EPS increased from $0.88 to an estimated $1.38 over the past five quarters indicating an improving growth rate. Analyst forecasts have recently been raised. The company recently reported better than expected results. Ford’s earnings momentum measures the acceleration or deceleration in trailing 12 month operating earnings per share growth. The upward curvature of the plotted points in the graph on the left below (click for a larger version) indicates that over the past five quarters, American Eagle’s earnings have shown strong acceleration in quarterly growth rates when adjusted for the volatility of earnings. This indicates an improvement in future earnings growth may occur.
“American Eagle’s stock price is up 50.7% in the last 12 months, down 5.2% in the past quarter and down 1.6% in the past month (see right graph above). This historical performance should lead to above average price performance in the next one to three months.
“Relative valuation is positive. American Eagle’s operating earnings yield of 6.8% ranks above 73% of the other companies in the Ford universe of stocks, indicating that it is undervalued. Price Movement is very positive.”
- Richard Segarra, CFA, Ford Equity Research, February 1, 2013