Apparel retailers were hit hard in the early days of the Covid-19 crisis—but many have recovered from those lows to post year-to-date gains.
believes that moves the companies made last month could further help the stocks.
Analyst Gabriella Carbone reiterated a Buy rating on
American Eagle Outfitters
(ticker: AEO) Friday, while raising her price target to $18 from $16. She kept Hold ratings on
(URBN), while raising her price targets to $39 from $33, and to $28 from $27, respectively. The moves come following “improving promotional activity” in September—that is, fewer discounts—which she notes could lead to higher margins.
Carbone believes that “each of these retailers has a unique assortment or provides a service that is resonating well with consumers,” as they have rolled out curbside pickup options.
Of course, she isn’t the first to notice the picture has improved for mall-based apparel chains recently. While Urban Outfitters is still down 15% year to date, it’s nearly doubled from its lows this spring. American Eagle and Gap have done much better, rising 4.5% and 10% in 2020, respectively.
That said, Carbone writes that although “sentiment around this group is the most favorable that we have seen in recent years, we still think there is room for these stocks to run,” especially American Eagle (a thesis she says is bolstered by recent upbeat results from fellow denim-heavy company Levi Strauss (LEVI).
She’s still on the sidelines for Gap, as she’s not yet convinced the company will be able to maintain its momentum, and worries about Urban Outfitters’ Anthropologie brand—given its heavy exposure to dressier clothing—is keeping her from being more bullish on the stock.
American Eagle is down 0.7% to $15.36 in recent trading. The stock was one of the best performers in retail in September, and Barron’s has noted that its Aerie brand could benefit from consumers’ changing shopping habits.
Urban Outfitters is up 1.1% to $23.72. It too has gotten more positive analyst attention recently, helped by a surprise profit in its most-recent quarter.
Gap, the best performer of the group year to date, is down 1.6% to $19.51 this morning. A number of analysts have gotten more upbeat about the shares in the past few months, helped by better-than-expected earnings and the company’s partnership with Kanye West.
Write to Teresa Rivas at [email protected]