Option Trade 
American Eagle Outfitters (NYSE:AEO) Calls 
Tuesday, August 18, 2015

**OPTION TRADE: Buy the AEO Nov 2015 18.000 call (AEO151120C00018000) at approximately $1.40. Place a protective stop loss at $0.55, and a pre-determined sell at $2.80.

by Ian Harvey

August 18, 2015

Introduction

American Eagle Outfitters (NYSE: AEO), a clothing and accessories retailer, will be announcing its Q215 earnings results on Wednesday, August 19th. Analysts expect the company to announce earnings of $0.14 per share and revenue of $768.26 million for the quarter.

After a splendid first-quarter fiscal 2015 performance backed by strong sales and lower promotions, American Eagle remains optimistic about its results as reflected in its second-quarter guidance. The company projects earnings per share in the band of 11-14 cents a share compared with 3 cents earned in the prior-year quarter. The guidance is based on the company's anticipation of high single-digit rise in comps.

Additionally, they believe that plans to expand globally along with omni-channel growth will enable the company to improve its business and efficiently cater to international demand. Also, American Eagle's average positive surprise of 14.1% represents an encouraging earnings picture in the past.

Therefore, American Eagle Outfitters is expected to beat expectations when it reports second-quarter fiscal 2015 results.

Technical Details

American Eagle Outfitters closed at $18.35 on Monday. American Eagle Outfitters has a 52-week low of $10.63 and a 52-week high of $18.41.

The firm has a 50-day moving average price of $17.73 and a 200 day moving average price of $16.66.

The stock has a market cap of $3.51 billion and a PE ratio of 33.17.

Earnings

Previous Earnings

American Eagle Outfitters last posted its quarterly earnings data on Wednesday, May 20th. The apparel retailer reported $0.15 earnings per share for the quarter, topping the Thomson Reuters consensus estimate of $0.12 by $0.03. The business earned $700 million during the quarter, compared to analysts’ expectations of $691.77 million. The firm’s revenue for the quarter was up 8.3% on a year-over-year basis.

During the same period in the prior year, the firm posted $0.02 EPS. On average, analysts expect American Eagle Outfitters to post $0.97 EPS for the current fiscal year and $1.07 EPS for the next fiscal year.

Positive Aspects

• American Eagle is well positioned to be a big back-to-school winner this season.

• Abercrombie & Fitch (NYSE:ANF), a rival to AEO, plans to close to 60 stores in the US this year, or roughly 15 per quarter. It is believed that ANF store closures and refreshes in the US promote greater traffic to neighboring AEO stores.

• In other American Eagle Outfitters news, Director Cary D. Mcmillan acquired 6,000 shares of American Eagle Outfitters stock in a transaction that occurred on Wednesday, June 10th. The stock was bought at an average price of $16.86 per share, with a total value of $101,160.00.

Analysts Opinions

Wolfe Research Initiates Coverage on American Eagle Outfitters. In a research note issued to the investors, the brokerage major announced a price-target of $22.00 per share. The shares have been rated Outperform. The rating by Wolfe Research was issued on Aug 17, 2015.

Also, research firm Zacks has rated American Eagle Outfitters, Inc. and has ranked it at 1, indicating that for the short term the shares are a strong buy.

Zacks also upgraded American Eagle Outfitters from a “hold” rating to a “buy” rating. They now have a $20.00 price target on the stock.

According to Zacks,

“American Eagle reported robust first-quarter fiscal 2015 results backed by strong sales and lower promotions. Further, the company provided an encouraging guidance for the second quarter that triggered an uptrend in the Zacks Consensus Estimate. We believe that plans to expand globally, along with omni-channel growth, will enable the company to augment business and efficiently cater to international demand.”

The company has also been the subject of a number of other research reports:-

• 8/17/2015 – American Eagle Outfitters had its “buy” rating reaffirmed by analysts at B. Riley. They now have a $21.00 price target on the stock.

• 8/17/2015 – American Eagle Outfitters had its “outperform” rating reaffirmed by analysts at Oppenheimer. They now have a $19.00 price target on the stock.

• 8/15/2015 – American Eagle Outfitters had its “hold” rating reaffirmed by analysts at Wunderlich.

Three equities research analysts have rated the stock with a sell rating, nine have issued a hold rating and seventeen have given a buy rating to the company. The stock currently has a consensus rating of “Hold” and an average price target of $17.32.

Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the AEO Nov 2015 18.000 call (AEO151120C00018000) at approximately $1.40. Place a protective stop loss at $0.55, and a pre-determined sell at $2.80.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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