American Eagle Outfitters Inc. (NYSE:AEO) fell more than 3% in premarket trading Friday after BofA Securities cut its rating on the retailer to Underperform from Neutral and lowered its price target to $10 from $11.
The brokerage cited a longer-than-expected path to normalized earnings, pressured by tariffs and weaker Aerie sales. It reduced fiscal 2025 and 2026 EPS estimates by 8% and 30% to $0.65 and $0.95, respectively.
BofA said AEO shares, which were trading at 5x EV/EBITDA (2026) and 13.5x P/E, carried downside risk given deteriorating fundamentals, noting mall-based peers traded at 5.6x EV/EBITDA and 11.7x P/E.
The firm also revised its income rating to reflect higher risk of a dividend cut, given a payout ratio of 76% on its 2025 EPS estimate. The lower price target of $10 was based on 4x 2026 EV/EBITDA, still at a discount to peers despite a sector re-rating.
