Bank of America Downgrades American Eagle to Underperform, Shares Drop

Bank of America Securities downgraded American Eagle Outfitters to Underperform, warning of a longer road to recovery due to tariff headwinds and weakening sales momentum. The bank trimmed its price objective to $10 from $11, and slashed its fiscal 2026 EPS estimate by 30% to $0.95. Shares slid over 3% in premarket trading. Tariffs are expected to be a key drag on profitability, and American Eagle continues to struggle to build momentum outside denim and faces secular challenges in intimates and swimwear.

In the latest market developments, Bank of America Securities has downgraded American Eagle Outfitters (AEO) to an 'Underperform' rating from 'Neutral', citing prolonged recovery challenges due to tariff headwinds and weakening sales momentum. The bank has also reduced its price target for AEO to $10 from $11, reflecting a significant downward revision. The fiscal 2026 EPS estimate has been slashed by 30% to $0.95, indicating a more cautious outlook on the company's financial performance [2].

The stock of the teen clothing retailer has seen a 30.68% rise in the past month, outperforming the broader Retail-Wholesale sector's gain of 3.44% and the S&P 500's 3.47% increase [1]. However, the recent downgrade suggests that investors should be cautious about the company's near-term prospects. The Zacks Consensus EPS estimate has moved 0.3% lower over the past month, and AEO currently features a Zacks Rank of #3 (Hold) [1].

The downgrade comes amidst concerns about tariffs, which are expected to continue to negatively impact profitability. Additionally, American Eagle is struggling to build momentum outside of its denim offerings and faces secular challenges in intimates and swimwear categories. These factors contribute to the bank's pessimistic outlook, leading to a significant reduction in its price target.

Investors should closely monitor the financial results of American Eagle Outfitters, scheduled for an upcoming release. The company is forecasted to report an EPS of $0.2 for the current quarter, representing a 48.72% decline from the prior year. The Zacks Consensus Estimates project full-year earnings of $0.83 per share and revenue of $5.19 billion, down 52.3% and 2.56%, respectively, from the previous year [1].

For the latest recommendations and updates on American Eagle Outfitters, investors can refer to the Zacks Investment Research platform. Keep an eye on the company's upcoming financial reports and any further analyst revisions to stay informed about potential stock price movements.

References:
[1] https://finance.yahoo.com/news/american-eagle-outfitters-aeo-falls-215001031.html
[2] https://www.marketscreener.com/news/bofa-securities-downgrades-american-eagle-outfitters-to-underperform-from-neutral-trims-price-targe-ce7c50d8d98ff225