American Eagle Outfitters Stock Is Down 40% This Year, But Can It Outperform After Coronavirus?

Comparing the trend in American Eagle Outfitters’ (NYSE: AEO) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 55% once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of American Eagle’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did American Eagle Outfitters Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and March 30th, American Eagle stock has lost 43% of its value (vs. about 21% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

American Eagle’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

The decline in American Eagle’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown are likely to have on total consumption/consumer spending and the global apparel industry. Moreover, people are just not going to shop for luxury or even basic apparel products. American Eagle has temporarily shuttered stores in the US and Canada, which is further impacting the company’s performance. Besides lower demand, American Eagle sources approximately 20% of its products from China, which has been the worst impacted by the outbreak. This places the company in a tricky spot as the company’s supplies could be adversely impacted, given its dependency on the country. The company also withdrew its earnings guidance provided after the release of its Q4 results (ending January), as it expects store closures and the impact of COVID-19 to have a material adverse impact on financial results.

 But American Eagle Stock Witnessed Something Similar During The 2008 Downturn

• We see American stock declined from levels of around $16 in October 2007 (the pre-crisis peak) to levels of about $6 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 61% from its approximate pre-crisis peak. This marked a steeper drop than the broader S&P, which fell by about 51%.
• However, AEO recovered strongly post the 2008 crisis to about $11 in early 2010 – rising by 79% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will American Eagle’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that American Eagle stock has fallen by 43% this time around compared to the 61% decline during the 2008 recession, we can expect it to recover by roughly 55% to levels of $13 once economic conditions begin to show signs of improving. This marks a partial recovery to the $15 level American Eagle stock was before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of Coronavirus impact on a diverse set of American Eagle’s multinational peers – from Coronavirus and Tapestry to impact on competitor Guess and Coronavirus on L Brands stock. The complete set of coronavirus impact and timing analyses is available here.

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