Lower gasoline prices, an improving labor market and positive consumer sentiment are enough to drive momentum in the retail space. Thus, it would be feasible on your part to add a few retail stocks to your portfolio that have solid fundamentals and could provide a sound investment opportunity. Here we have highlighted one such stock – American Eagle Outfitters, Inc. AEO – that looks promising and sports a Zacks Rank #1 (Strong Buy), with a long-term earnings growth rate of 10%. We have analyzed a few basic aspects of the stock that has surged 16% year to date.
Positive Earnings Surprise History
American Eagle appears compelling from the earnings perspective. This specialty retailer of casual apparel, accessories and footwear registered positive earnings surprises in four out of the past five quarters. In the trailing four quarters, the Pittsburgh, PA-based company outperformed the Zacks Consensus Estimate by an average of 16.7%, including a positive surprise of 2.9% delivered in the third quarter of fiscal 2015.
American Eagle reported robust third-quarter results, wherein its earnings of 35 cents a share increased 59% year over year and came a penny ahead of the Zacks Consensus Estimate. Results benefited from solid sales and earnings growth delivered by both the American Eagle and Aerie brands, across all networks. Total revenue improved nearly 8% to $919 million.
Following the company’s better-than-expected results, the Zacks Consensus Estimate has been portraying an uptrend, climbing 3 cents and 1 cent to $1.08 for fiscal 2015 and $1.15 for fiscal 2016, respectively, over the past 30 days. Clearly, a positive sentiment is palpable among analysts covering the stock.
Sturdy Growth Score
Who doesn’t want a portfolio that generates higher returns? However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the growth perspective. To make the task easy, Zacks has designed the new Style Score System.
The attractiveness of American Eagle as an investment option is also confirmed by its Growth Style Score of ‘A’. The Growth Style Score combines conventional growth metrics with a thorough analysis of the company’s income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Back-tested results show that stocks with a Growth Style Score of ‘A’ or ‘B’, when combined with a Zacks Rank #1 or #2 (Buy), offer the best upside potential.
Solid Fundamentals Underscore Potential
American Eagle remains focused on strengthening its product assortments by adding more compelling brands, managing inventory levels diligently and improving its eCommerce business. Moreover, it remains committed toward enhancing store sales by rationalizing its brick-and-mortar store fleet that includes closing underperforming stores. Further, the company possesses strong fundamentals, given its rewards program and strategic store expansion plans. Also, American Eagle has been constantly undertaking initiatives to reduce costs through supply chain efficiencies and its updated product allocation system. These efforts are expected to help the company augment its bottom line.
Other Stocks to Consider
Investors interested in the retail space may also consider other well-ranked stocks such as Abercrombie & Fitch Co. ANF, sporting a Zacks Rank #1, Foot Locker, Inc. FL and Express Inc. EXPR, both carrying a Zacks Rank #2.
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