Analyst: American Eagle's Financial Targets Are Too "Lofty"

Options traders have favored puts for weeks

Deputy Editor
May 31, 2022 at 10:22 AM
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The shares of American Eagle Outfitters Inc (NYSE:AEO) are down 3.8% to trade at $12.59, after Morgan Stanley issued a bear note. Specifically, the brokerage firm downgraded the apparel retailer to "underweight" from "equal-weight," citing the company's 2022 guidance slash, while also noting American Eagle's 2023 targets are "lofty."

Further, Morgan Stanley cut is price target to $8 from $22, while Barclays slashed its own price objective to $13 from $19. There's room for additional bear notes as well, considering the 12-month consensus price target of $17.55 is a 34% premium to Friday's close, and five of 10 in coverage still rate the stock a "strong buy."

Today's drop has American Eagle stock pulling back toward its May 24, roughly two-year low of $11.61. The 50-day moving average has kept a lid on the shares for much of the year, while the 10-day trendline has provided more recent resistance. Fresh off its sixth-straight weekly dip, AEO now sports a 48.3% year-to-date deficit.

The options pits have leaned bearish in recent weeks, with puts being picked up at a faster-than-usual rate. The stock's 10-day put/call volume ratio of 3.12 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 99% of readings from the past year.  

Echoing this, American Eagle stock's put/call open interest ratio (SOIR) of 1.35 ranks in the 83rd percentile of annual readings. In other words, short-term options traders have rarely been more put-biased.


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