Morgan Stanley upgraded American Eagle (AEO) to Equal Weight from Underweight with a price target of $16, up from $15. Against record gross margins, the firm thinks softlines profitability expansion “will be harder to come by” in 2025, which places the burden on sales growth acceleration and/or expense reduction. This setup makes 2025 more of a stock-picking environment in softlines, and also means the dispersion between leaders and laggards likely continues to widen, the analyst tells investors in a research note. As a result, Morgan Stanley adjusted ratings in the sector as part of its 2025 outlook. It is expecting a “more-of-the-same” softlines demand backdrop, but cautions profitability improvement may prove harder to come by this year.
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