What To Expect From American Eagle Outfitters’ Stock Post Q3?

American Eagle Outfitters (NYSE: AEO), which sells men’s and women’s apparel and accessories under the American Eagle, Tailgate, Todd Snyder, and Aerie brands, is scheduled to report its fiscal third-quarter results on Tuesday, November 23. In the upcoming Q3, we expect the company’s stock to likely trade higher with revenues and earnings beating consensus. In 2020, the pandemic accelerated Aerie’s sales as the brand stood out for AEO, amid declining sales of its namesake brand. That said, the American Eagle brand has been performing quite well so far with Q2 2021 revenues growing 35% y-o-y to $846 million. Aerie’s revenue grew by 34% y-o-y to $336 million after lapping extremely difficult comps of 32% growth in Q2 2020, assisted by strength in core intimates, swimwear, and apparel. Going forward, we expect Aerie to continue its growth trajectory, with revenues likely increasing to $1.5 billion in FY 2021. As such, the women’s intimate wear market of $16 billion is a huge opportunity for Aerie to expand further.

Our forecast indicates that American Eagle Outfitters’ valuation is around $30 a share, which is almost 11% higher than the current market price of  $27. Look at our interactive dashboard analysis of American Eagle Outfitters Pre-Earnings: What To Expect in Q3? for more details.

1) Revenues expected to be slightly above consensus estimates

Trefis estimates AEO’s FQ3 2021 revenues to be $1.25 Bil, slightly above the consensus estimate of $1.23 Bil. In the recent Q2, the company’s revenues grew a strong 35% year-over-year (y-o-y) to $1.2 billion, driven by increased traffic as economies re-opened. While the retailer’s revenue was the highest it has been in the second quarter, it still missed the analyst consensus slightly by $30 million. To break down the revenue growth, AEO’s store revenue grew by 73% y-o-y but digital revenue fell 5% during the same period. It looks like some investors might have liked to see the company perform a little better on the digital front, but it should also be noted that the company was up against a tough comparison when digital demand surged 48% y-o-y in fiscal Q2 last year. Compared to the pre-Covid quarter, the company’s store revenue increased 4% and digital revenue grew 66%.

(2) EPS likely to beat consensus estimates marginally

AEO’s FQ3 2021 earnings per share (EPS) is expected to be $0.63 per Trefis analysis, marginally beating the consensus estimate of $0.61. AEO posted second-quarter earnings per share of $0.60, up more than 50% from $0.39 in Q2 2019. One of the major contributors to profitability was again Aerie, which saw its Q2 operating profit increase 7 times from the pre-pandemic quarter. This is despite the ongoing higher labor shortages and supply chain disruptions.

(3) Stock price estimate higher than the current market price

Going by our American Eagle Outfitters’ Valuation, with an EPS estimate of around $2.17 and a P/E multiple of 13.8x in fiscal 2021, this translates into a price of around $30, which is 11% higher than the current market price.

For further comparison among peer groups, it is helpful to see how they stack up. AEO Stock Comparison With Peers shows how American Eagle Outfitters compares against peers on metrics that matter.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.