AEO Stock Alert: Why American Eagle Is Seeing Activist Speculation

Curiously, shares of fashion apparel retailer American Eagle Outfitters (NYSE:AEO) has been a top performer in recent sessions, sparking speculation about possible activist investor involvement. Fundamentally, conditions within the consumer economy don’t bode well for AEO stock. What’s more, a regulatory filing adds fuel to the activist rumor.

Specifically, a Seeking Alpha report noted that multinational universal bank Barclays (NYSE:BCS) revealed in a recent 13F filing that it was acquiring shares of the fashion brand. During the second quarter, the financial institution purchased 3.15 million shares of AEO stock. Notably, the bank also ranks among the top 15 holders of American Eagle as of June end.

Per Seeking Alpha, “[t]he additions from Barclays are noteworthy because prime brokerages sometimes act as counterparties for activist swap positions.”

Moreover, American Eagle announced on Thursday that Chief Operations Officer Michael Rempell resigned effective early 2024 to pursue personal interests. However, this disclosure raised eyebrows, further heightening activist rumors about AEO stock. Many analysts viewed Rempell as CEO Jay Schottenstein’s “heir apparent.”

AEO Stock Rises Despite Obvious Consumer Pressures

Adding yet another twist, American Eagle preannounced its second-quarter results. Per Reuters, the company expects revenue and operating income for the three months ended July 31 to land above the prior forecast.

On the top line, revenue should be flat on a year-over-year basis, compared to prior guidance of down low-single digits. Also, management sees operating income exceeding prior guidance of $25 million to $35 million.

“Demand picked up in late June, with strength continuing as we introduced our initial Fall collections in July,” Schottenstein said. To be sure, AEO stock gained about 27% during the trailing one-month period.

Still, the broader narrative remains challenging for American Eagle. As a McKinsey & Company report highlighted, consumers are trading down in an effort to seek savings. In other words, they’re spending but are also seeking value.

Corroborating evidence comes from S&P Global Mobility, which noted that the average age of passenger vehicles on U.S. roadways hit a record 12.5 years earlier this year. Per the AP, consumers are repelled by high car prices, thus electing to hold onto their vehicles as long as possible.

Why It Matters

Currently, data from TipRanks reveals that analysts peg AEO stock as a consensus moderate buy. This assessment breaks down as four “buys,” five “holds” and one “sell.” Despite the positive implications, the average price target now lands at $13.75, implying more than 10% downside risk.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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