American Eagle (AEO) stock was hit with a downgrade on Monday that has continued to send its shares lower on Tuesday. Four-star Bank of America analyst Christopher Nardone downgraded the apparel company's shares to Underperform from Neutral. He also cut the firm's price target for AEO stock to $10 from $11, suggesting a potential 20% downside for the shares.
While Nardone addressed the success of American Eagle's recent Sydney Sweeney Has Great Jeans marketing campaign, he doesn't believe it will be enough to support the company over the long term. Additionally, the analyst highlighted the impact that tariffs will have on the denim clothing retailer's business, as well as expected weakness from its Aerie brand.
Here's what the Bank of America analyst had to say about American Eagle in a note to clients: "On AE, the jury is out on whether product outside of denim can gain momentum, and on Aerie, secular challenges in intimates and swim adds more pressure on Offline to maintain momentum. Pulling back on promos could curtail traffic, and we see risk that Aerie could pull back on store opening plans next year if the retail environment remains tough."
American Eagle stock was down slightly in pre-market trading on Tuesday, following a 2.72% drop yesterday. The company's shares have also fallen 22.6% year-to-date and 44.93% over the past 12 months. Yesterday's dip came alongside some 10 million shares traded, compared to a three-month daily average of about 15 million.
Turning to Wall Street, the analysts' consensus rating for American Eagle is Hold, based on one Buy, six Hold, and three Sell ratings over the past three months. With that comes an average AEO stock price target of $11.44, representing a potential 8.48% downside for the shares.