American Eagle Outfitters (NYSE:AEO)

Futuristic Nostalgia

Cutting costs across the board. AEO hiring the former CEO of Levi was a great management idea.

Market oversells due to prediction of slow first quarter, ignores increase in 4th quarter sales, 14% raise of dividends, and 20 mil in share repurchase program.

The Eagle flies in spring!! AEO has slowly wrested leadership in the teen fashion angst market from its competitors. As a teacher, I can tell you, teens can't afford their text books, but they seldom skimp on their "dressage". [Sorry, Rafalca...] May dip a bit in summer but "Back-to-School" Fall looks primo as well.

Catherine Baab-Muguira

Popular brand. They're very good at advertizing and teens are a huge market. I think they'll continue to grow so long as the economy does. Teens are very concerned with their looks and popularity. And AEO is a company that meets their needs in those areas.

Big run-up...

http://www.fool.com/investing/general/2012/03/31/is-it-time-to-short-this-retailer-again.aspx?source=iaasitlnk0000003

Because it is ranked #15 of the top company pages on Facebook.

Typically dont play the buyout game but this one just screams it too much

Too large of a hair cut. I;m going with AEO.

Caps price $10.94 giving them a 4% dividend yield.

Conclusion:

Investing in retail isn’t always easy. I always felt the restaurant part of my portfolio far more stable and much easier to predict, but if you are right with retail the rewards can be very great. Something else I like about retail is the seasonal patterns. If a company shows sales strength, but poor stock price action, every often the holidays will give it the needed rebound and make for a good trade.

AEO has a very deep customer base. They are cheaper than leader ANF, so they can’t raise prices too much to compensate for higher commodity prices. But higher cotton prices should be a temporary problem.

They are financially strong. They have $515 million in cash and no debt. They reported TTM cash flow of $184.8 million or $0.94 per share down from TTM cash flow of $227.6 million or $1.12 last year. Sales grew 3.7% in the quarter which may signal a stabilization of the business which bodes well for the holiday season.

Last year, they paid out $183 million in dividends, but $0.50 per share was a special dividend paid in 2010. This year, excluding a special dividend their dividend obligations should be about $86 million. Since they are reporting about $184 million in TTM cash flow, the dividend should be very safe and they could even raise it or pay another special dividend. Presently their annual dividend is $0.44 which gives them a yield of 4%.

I think AEO is a good risk. I think they are developing businesses that will help them compete with others in their industry. And there are those in their industry that aren’t doing well and may disappear soon giving them more market to grab. I own ARO and ANF, but at the 4% yield, I think AEO would make a good addition to my portfolio. I think they are positioning themselves well for the holidays.

Company is doing poorly due to teen unemployment and poor economy. Teen retailers are getting destroyed and fundamentally face significant headwinds as they try to get out of this rut. Not to mention their styling is pretty dated considering every teeny bopper is seeing the same products amongst the retailers in this group. The only teen retailer worth purchasing is Abercrombie from a fundamental standpoint.

American Eagle Outfitters found out what even a slight miss can do to your stock price in an environment of high volitility. I usually find a 2-3 day cooling off period is in order before making a CAPS or a real life financial play for an equity that is in the process of getting beaten up by Mr. Market. During high volitility, however, sometimes Mr. Market over/under shoots and a bargain can be found. It's a high risk play, however, especially in real life in cases like this where we are hitting a new two year low, and very nearly, despite the recession in 2008-2009, a six year low! Breaking new lows at this level means the technicals are broken, there is NO known resistance level, and the bottom can be pretty much anywhere and take time to settle in. This will be especially true if more downward volitility continues.

In the case of American Eagle Outfitters, I'm willing to assume some risk of an "early entry" and the possibility of more market volitility. American Eagle Outfitters is being treated like it posted a huge loss or extremely low forward guidance. While you can't disappoint Mr. Market and his often irrational expectations, a highly profitable retailer with decent margins and a VERY SOLID dividend that is now at 4% deserves at least some respect while a few pegs are removed, not a trip to the landfill.

American Eagle was hit by reduced sales and is possibly being pinched in the competition for the teen/young adult market by Abercrombie and Fitch (ANF). In addition they cited rising cotton prices. It is difficult to match costs with prices in this market. The retail customer is looking for and expecting bargains. The reduced sales plays into an increased inventory which is also dififcult to manage. As a result they missed by $0.01 this quarter and guided down about 10% for the year.

Weigh the miss and lowered guidance, however against a profitable company with a P/E of about 12, (good for a profitable retailer), no debt, $600 Million, ($3 per share) in cash, excellent cash flow, and a strong dividend and factor in a strong management and the upcoming back to school/Christmas seasons and you have a company that was very likely undervalued before the 9% drubbing Mr. Market gave it, on top of the 15% it had already given back the last month. I'll take an entry sub $10.30, even in a volitile market that may take more and collect the 4% dividend and ride American Eagle and easily sleep at night.

American Eagle is a cyclical company with strong fundamentals that has been facing recessionary headwinds, business will pick up when consumer discretionary spending goes up. They have a fortress balance sheet, massive amounts of free cash flow relative to GAAP earnings, lots of expansion opportunities both domestic and international, and their clothes are stylish and resonate with their target demographic. They also pay a beefy dividend - factor in this year's special dividend and you get a 7% yield. Insiders have been buying shares like crazy with their own money for the past year. This stock is a win.

More in-depth analysis here: http://seekingalpha.com/article/277936-american-eagle-outfitters-a-prime-buying-opportunity-for-value-investors

This company has no debt good cash flow and is very undervalued in my humble opinion.

aeo is like a ship wreck waiting to happen.
who wants to take them over or buy them out. AEO needs big help in marketing, to make a profit

Best takeover target in market and good fundamentals. I have been doing great playing it's options.

Teenagers and twenty-somethings like it. Low debt. Pays dividend. I don't expect a lot of growth to come out of this, but it should still outperform.