Bank of America Downgrades American Eagle to "Underperform" Citing Tough Operating Environment.

Bank of America has downgraded American Eagle Outfitters to "underperform" from "neutral", citing a challenging operating environment. The firm believes the company is far from returning to normalized earnings.

American Eagle Outfitters (AEO) faced a challenging start to the day on Monday as its shares slipped nearly 4% in premarket trading. The catalyst for this decline was a downgrade from Bank of America (BofA) to "Underperform" from "Neutral," citing a prolonged recovery path for the retailer amid tariff headwinds and weakening sales momentum [1][2][3][4].

The downgrade came with a significant reduction in BofA's price target, lowering it to $10 from $11, and slashing its fiscal 2026 EPS estimate by 30% to $0.95 [1][2][3][4]. The bank cited higher tariffs and lower sales of its activewear brand Aerie as key factors contributing to the downgrade. BofA noted that the boost from the recent Sydney Sweeney campaign for American Eagle's denim brand may not fully offset the impact of tariffs.

American Eagle's stock has been under significant pressure, losing 23% this year and declining 43% in the past 12 months. The company is expected to report second-quarter results on September 3, with analysts forecasting quarterly net revenue of $1.23 billion and earnings per share (EPS) of $0.20 [1][2]. Retail sentiment on American Eagle remained unchanged in the 'bearish' territory, with chatter at 'extremely low' levels, according to data from Stocktwits [1].

BofA highlighted that American Eagle continues to struggle to build momentum outside its denim offerings and faces secular challenges in intimates and swimwear categories. The firm sees a longer path to more normalized earnings in the current environment [1][2][3][4]. Despite the challenges, there are potential offsets, such as stronger-than-expected performance from the Sydney Sweeney campaign or seasonal strength in denim during the back-to-school period [4].

Investors should closely monitor American Eagle's upcoming financial results and any further analyst revisions to stay informed about potential stock price movements. The company's Zacks Consensus EPS estimate has moved 0.3% lower over the past month, and AEO currently features a Zacks Rank of #3 (Hold) [2].

References:
[1] https://stocktwits.com/news-articles/markets/equity/american-eagle-slips-4-premarket-as-bofa-downgrade/chssYdJRd1M
[2] https://www.ainvest.com/news/bank-america-downgrades-american-eagle-underperform-shares-drop-2508/
[3] https://seekingalpha.com/news/4488709-bofa-cuts-rating-on-american-eagle-citing-tough-current-operating-environment
[4] https://ca.finance.yahoo.com/news/tough-time-turnaround-bofa-downgrades-124008456.html