Citi bolsters American Eagle shares, eyes on Q4

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Citi bolsters American Eagle shares, eyes on Q4

On Tuesday, Citi has adjusted its share price target for American Eagle Outfitters (NYSE: AEO ), increasing it to $26.00 from the previous $23.00, while keeping a Neutral stance on the stock. The adjustment occurs as the firm anticipates an earnings report that aligns with consensus expectations for the fourth quarter, which is set to be released before the market opens on March 7.

American Eagle had previously disclosed preliminary figures at the ICR conference in early January. The company is expected to host an investor day concurrently with the release of its fourth-quarter earnings, with a significant focus on the fiscal year 2024 guidance and financial targets for fiscal year 2026.

Analysts from Citi project that the guidance for fiscal year 2024 earnings per share (EPS) will be approximately $1.80, surpassing the consensus estimate of $1.56. This forecast is supported by anticipated high single-digit comparable sales growth for the Aerie brand, low single-digit growth for the American Eagle brand, and an estimated 150 basis points expansion in EBIT margin to around 8.5%. The margin expansion is attributed to gross margin expansion and SG&A leverage.

Looking further ahead, management anticipates setting a target of mid-single-digit annual top-line growth and a long-term double-digit EBIT margin by fiscal year 2026. This implies an estimated fiscal year 2026 EPS of approximately $2.50 or higher, which is significantly above the current consensus estimate of $1.69, before factoring in any potential future share repurchases.

Citi has also initiated a 90-day positive Catalyst Watch, citing a favorable risk/reward scenario leading into the fourth-quarter earnings. This outlook is bolstered by strong momentum in both the Aerie and American Eagle brands, along with the management's commitment to SG&A discipline, which is expected to lend credibility to the fiscal year 2024 and 2026 targets.

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