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American Eagle Loses Ground: Will the Trend Reverse in '17?
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After being a ‘Cash Cow’ stock for a long time, the shares of American Eagle Outfitters Inc. (AEO - Free Report) delivered a negative return of 5.7% in 2016. Though the company has to its credit a solid surprise history, the primary reason for the slump during last year can be attributable to overall soft retail environment that resulted from lower mall traffic. Further, elevated competition and the growth of eCommerce have been pressing concerns for most apparel retailers in 2016.
Further, American Eagle went on to underperform the Zacks categorized Retail – Apparel/Shoe industry in the past six months. Shares of this specialty retailer of casual apparel, accessories and footwear declined 4.9% in the last six months, while the broader industry witnessed a growth of 6% in the same time frame.
The company’s performance portrayal becomes gloomier as we notice that the stock has dropped 11.5% in the last three months, compared to the broader industry’s fall of only 3.8%. This recent drop in the stock price can chiefly be attributed to the company’s lower-than-expected forecasts for the holiday season. However, this is no exception to the prevailing trend among players in the industry, who have also provided soft holiday season outlooks. Although this definitely is a cause of concern as it means that the retailers are in for another challenging holiday season.
Notably, during the holiday season retailers stay on their toes, flooding the market with offers and promotions. They strive to sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies, and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues and profits, a dismal performance will hamper growth.
Coming back to American Eagle’s forecasts, the company anticipates comps for the fiscal fourth quarter to be flat to up low-single digits. Management envisions earnings per share in the range of 37 cents to 39 cents, reflecting a decline from fourth-quarter fiscal 2015 earnings of 42 cents.
While its global expansion plans and omni-channel growth are likely to augment business, the company’s high dependence on external suppliers and macroeconomic headwinds can prove deterrents for the stock. Additionally, American Eagle remains exposed to the perils of expanding international presence. Apart from the political and economic risks, the lingering currency headwinds remain a key concern.
Further, the seasonal and cyclical nature of the company’s business puts it at risk as failure to perform well during the peak season might hurt its annual performance.
Conclusion
All these apart, we still see American Eagle as a stock with great long-term potential. However, going by current trends we would keep a close watch on this Zacks Rank #4 (Sell) stock until we get some positive news flow on the stock.
Children’s Place, with a long-term earnings growth rate of 10.3%, has surged a whopping 72% year over year.
Nordstrom has gained 27.1% in the last six months. Moreover, it has a long-term earnings growth rate of 8%.
Zumiez has jumped 43.7% in the past one year. The stock has a long-term earnings growth rate of 15%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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American Eagle Loses Ground: Will the Trend Reverse in '17?
After being a ‘Cash Cow’ stock for a long time, the shares of American Eagle Outfitters Inc. (AEO - Free Report) delivered a negative return of 5.7% in 2016. Though the company has to its credit a solid surprise history, the primary reason for the slump during last year can be attributable to overall soft retail environment that resulted from lower mall traffic. Further, elevated competition and the growth of eCommerce have been pressing concerns for most apparel retailers in 2016.
Further, American Eagle went on to underperform the Zacks categorized Retail – Apparel/Shoe industry in the past six months. Shares of this specialty retailer of casual apparel, accessories and footwear declined 4.9% in the last six months, while the broader industry witnessed a growth of 6% in the same time frame.
The company’s performance portrayal becomes gloomier as we notice that the stock has dropped 11.5% in the last three months, compared to the broader industry’s fall of only 3.8%. This recent drop in the stock price can chiefly be attributed to the company’s lower-than-expected forecasts for the holiday season. However, this is no exception to the prevailing trend among players in the industry, who have also provided soft holiday season outlooks. Although this definitely is a cause of concern as it means that the retailers are in for another challenging holiday season.
Notably, during the holiday season retailers stay on their toes, flooding the market with offers and promotions. They strive to sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies, and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues and profits, a dismal performance will hamper growth.
Coming back to American Eagle’s forecasts, the company anticipates comps for the fiscal fourth quarter to be flat to up low-single digits. Management envisions earnings per share in the range of 37 cents to 39 cents, reflecting a decline from fourth-quarter fiscal 2015 earnings of 42 cents.
While its global expansion plans and omni-channel growth are likely to augment business, the company’s high dependence on external suppliers and macroeconomic headwinds can prove deterrents for the stock. Additionally, American Eagle remains exposed to the perils of expanding international presence. Apart from the political and economic risks, the lingering currency headwinds remain a key concern.
Further, the seasonal and cyclical nature of the company’s business puts it at risk as failure to perform well during the peak season might hurt its annual performance.
Conclusion
All these apart, we still see American Eagle as a stock with great long-term potential. However, going by current trends we would keep a close watch on this Zacks Rank #4 (Sell) stock until we get some positive news flow on the stock.
Meanwhile, investors can consider better-ranked stocks in the same industry including The Children’s Place Inc. (PLCE - Free Report) , sporting a Zacks Rank #1 (Strong Buy), Nordstrom Inc. (JWN - Free Report) and Zumiez Inc. (ZUMZ - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Children’s Place, with a long-term earnings growth rate of 10.3%, has surged a whopping 72% year over year.
Nordstrom has gained 27.1% in the last six months. Moreover, it has a long-term earnings growth rate of 8%.
Zumiez has jumped 43.7% in the past one year. The stock has a long-term earnings growth rate of 15%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>