JP Morgan has downgraded American Eagle Outfitters (AEO) stock to “Underweight” and set a new price target of $9, signalling concern over the company’s near-term outlook.
The downgrade comes as the investment bank sees weak product demand, especially in key seasonal categories like shorts and swimwear, which struggled throughout the quarter. Analysts believe denim could provide a lift in August, but it’s not enough to change the bigger picture.
JP Morgan expects second-quarter earnings to come in at $0.18 per share, slightly below Wall Street’s average of $0.20. This is due to ongoing declines in same-store sales and heavier-than-expected margin losses. Gross margins are projected to fall by 270 basis points compared to last year, mainly due to higher markdowns, foreign exchange impacts, and increased costs from tariffs.
The outlook for the third quarter isn’t much better. JP Morgan forecasts earnings of $0.36, which is 12% lower than consensus estimates, as advertising expenses grow and profit margins remain under pressure.
For the full year, JP Morgan expects American Eagle to report earnings of $0.75 per share, again slightly below the market’s expectation of $0.78. The firm also warned that problems could continue into fiscal year 2026, where they estimate earnings to be 15% below what most analysts are predicting.
Overall, JP Morgan expects both growth and profit margins to fall behind pre-pandemic levels. That’s why their $9 price target is based on just 3 times their estimated earnings for 2027, much lower than American Eagle’s historical average.
In short, the firm believes American Eagle is facing too many challenges right now to recommend buying the stock.