Posted by Davy Bui on May 5th, 2008 in Uncategorized

A reader posted a comment disagreeing with my assessment of American Eagle Outfitters (AEO). Unfortunately, no constructive analysis was provided to support the reader’s case.

Below you will find my report on AEO.  Keep in mind I am discounting the following factors:

1. I am skeptical that AEO can maintain their current market and brand position. There is an oft-quoted tidbit that AEO is the 2nd best known brand among the young adult demographic behind Nike. It is my unscientific opinion that Nike’s brand is far superior to American Eagle Outfitters and I do not expect AEO to maintain the cool cachet among the teen set indefinitely.  Martin+Osa’s failure to capture the post-teen demographic suggests my skepticism may be warranted.  M+O is targeted toward AEO’s core market as they move beyond their teenage & college years but has failed to catch on.
2. AEO derives the vast majority of its revenues from the US market.  Regular readers are well aware of my bearishness toward the US dollar and the general consumer-oriented domestic economy.
3. A very real possibility of a prolonged, consumer-led US recession could continue AEO’s bad run of results.

04/11/2008

American Eagle Outfitter is a leading clothes retailer specializing in the 15-25 year old demographic, with start-up programs targeting kids (via the 77kids brand) and thirty-somethings (via Martin + Osa). The vast majority of their operations are in the US with some in Canada.

Intrinsic Value: $15 - $18 per share
Accumulation Range: $11 per share or better

Download the full report here.