Struggling teen retailer
American Eagle Outfitters (
is in free-fall mode this morning after a surprise announcement
on Wednesday after the market closed that CEO Robert Hanson was
leaving the company. AEO shares are down 10% in regular
RBC analyst Howard Tubin is quoted as saying the news comes as
a complete surprise. Tubin went further to say that Hanson was
implementing positive changes at the company and was mostly liked
by Wall Street. Coming on a down day for
, shares of American Eagle have been hit particularly hard.
The news should be treated as a screaming buying opportunity.
Occasionally, the stock market acts like a petulant child. This
is one of those moments. When it is announced that the CEO
is leaving, the child is disappointed and throws a tantrum. I see
today's move as nothing more than a tantrum.
While I can appreciate the market being concerned about a
change in management, a 10% selloff in
is ludicrous. Yes, a bad manager can have a detrimental impact on
the performance of a company, but let's not get carried away
The company deserves the benefit of the doubt in its ability
to find an adequate replacement. My guess is American Eagle will
do just that. It's a plum job and I suspect there will be plenty
of candidates to choose from.
AEO Stock: Looking Ahead
What really ultimately matters is the valuation of the stock.
AEO shares were already depressed before this news. They are even
I would also add that they are attractive at current levels.
Not everyone agrees.
Stifel Equity Research Group cut the rating on the stock to
hold from a buy citing the uncertainty of the turnaround and now
CEO search demands on the company.
Talk about a vague reason for the downgrade. When I hear such
things, it tells me the analyst simply doesn't know what he is
talking about. Instead of showing leadership, the analyst punts
and downgrades the stock.
One analyst holding his buy rating on American Eagle is
Randall Konik of Jeffries. He views the news as short-term
negative. He thinks the company can continue to build momentum
restoring its brand.
Before this news, American Eagle was
poised to rally
- not too dissimilar to what transpired with
Abercrombie & Fitch (
when that stock soared after good news.
Analysts expect American Eagle to grow profits by 23% from the
current fiscal year ending Jan. 31, 2014 to the next fiscal year.
At current prices, the stock trades for only 14 times next fiscal
year estimated earnings.
As for the reason that Robert Hanson left the company, there
is no specific news cited. It could be any number of things, with
most of the reasons having nothing to do with the performance of
the company. Whatever the case may be, American Eagle is
bigger than just the CEO and as such, I would use the selling as
a buying opportunity.
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