BofA cuts rating on American Eagle citing tough current operating environment

[American Eagle Outifitters 34th Street Manhattan]
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Bank of America has downgraded American Eagle Outfitters (NYSE:AEO [https://seekingalpha.com/symbol/AEO]) to "underperform" from a previous investment rating of "neutral" on Monday. The research firm believes the company is a long way from its earnings normalizing in the current environment.

BofA believes the namesake brand of the company and its sub-brand Aerie are in tough positions to navigate tariffs and does not think that either of them has much pricing power.

"We think a sales recovery for both brands following the 1Q assortment issues will take time. On AE, the jury is out on whether product outside of denim can gain momentum, and on Aerie, secular challenges in intimates and swim adds more pressure on Offline to maintain momentum," the research firm said.

"Pulling back on promos could curtail traffic, and we see risk that Aerie could pull back on store opening plans next year if the retail environment remains tough," BofA said.

AEO has a price target of $10, implying a downside of 22.5%. Shares are down nearly 3% in early open market trading.

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