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Understanding American Eagle’s Newly Added Risk Factor

American Eagle (AEO) is an American multi-brand specialty retailer. The company operates in the United States, Mexico, China, Canada, Hong Kong and the United Kingdom.

For Q3 2021, American Eagle reported adjusted EPS of $0.76, compared to $0.35 in the same quarter a year ago and above the consensus estimate of $0.60.

American Eagle reported revenue of $1.27 billion, surpassing analysts’ estimate of $1.22 billion. AEO currently offers a dividend yield of 2.85%, compared to a sector average of 1.51%. American Eagle’s stock has climbed about 6.69% over the past year. 

With this in mind, we used TipRanks to take a look at the risk factors for American Eagle.

Risk Factors

According to the new TipRanks Risk Factors tool, American Eagle’s main risk categories are Ability to sell and Macro & Political, representing 25% each of the total 28 risks identified for the stock. Finance & Corporate, Tech & Innovation, and Legal & Regulatory are the next three major risk categories at 14% each. The company has recently updated its risk profile with one new risk factor under the Legal & Regulatory category.

In a newly added Legal & Regulatory risk factor, American Eagle informs investors about the impact of the new rule proposed by U.S. President Joe Biden on September 9, 2021. The new rule, which applies to all employers with more than 100 employees, has yet to receive the green light from the United States Court of Appeal. 

The new rule will make it mandatory for all American Eagle’s employees to get vaccinated or be tested on a regular basis. The company expects the rule to cause disruptions to the retail store operations, employee attrition and increased labor costs, which could have a direct and unfavorable impact on the business and its results. 

The Ability to Sell risk factor’s sector average is 20.04%, below American Eagle’s 25%.

Analysts’ Take

Last week, Barclays analyst Adrienne Yih reiterated a Buy rating on the company’s stock and reduced the price target to $38 from $46. Yih’s new price target suggests 60.00% upside potential. The analyst believes that increasing cases of omicron, a slower start in 2022, and reduced promotional activities, among other factors, will weigh on the AEO’s January traffic and sales.

Consensus among analysts is a Moderate Buy based on 5 Buys and 3 Holds. The American Eagle price target of $34.88 implies 46.88% upside potential to current levels.

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Read full Disclaimer & Disclosure

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