Analyst Picks & Pans

Stocks Picks: American Eagle, Ameris, Esterline, GameStop


American Eagle Outfitters: UBS Securities equity analyst Roxanne Meyer maintained a neutral rating on shares of apparel retailer American Eagle Outfitters (AEO) on May 27. She lowered a price target on the stock to $13.50 from $17.

On May 26, American Eagle fell the most in more than two years in New York trading after its second-quarter profit forecast fell short of analysts' projections.

Excluding some costs, profit will be as much as 16¢ a share, the Pittsburgh-based company said in a statement. That trailed the 21¢ average of estimates compiled by Bloomberg. The forecast reflects "weaker business trends early in the quarter," the retailer said.

American Eagle aims to cut inventory levels in the second half, after increasing stock by 15 percent in the first quarter, Chief Financial Officer Joan Hilson said on a conference call.

In a note, Meyer said that the company's first-quarter earnings per share (EPS) of 17¢ was in line with the estimate, but the company's second-quarter guidance "fell short of expectations," driven by soft performance of summer goods in May.

"While it is still early in the second quarter, heightened inventory levels (though mostly due to big denim investment) may keep a lid on [same-store sales and] margin upside," Meyer said.

The analyst said it is unclear whether American Eagle "has the right formula to maximize sales" and whether its merchandise will resonate with its core customers "given a more fashion-forward orientation."

Meyer lowered her EPS estimate for fiscal 2010 to $1.12 from 1.14 and has a new fiscal 2011 estimate of $1.28.

Ameris Bancorp: Keefe, Bruyette & Woods initiated coverage on shares of Ameris Bancorp (ABCB) on May 27 with a buy rating and $14 price target.

Ameris, based in Moultrie, Ga., is a multibank holding company with operations in Georgia, Florida, and Alabama.

"After [Ameris Bancorp] recently [raised] capital, we believe [it] now has the opportunity to play a significant role in rolling up bank failures in the southeast," said KBW equity analyst Brady Gailey in a brief note.

"While legacy asset-quality issues do exist, we believe Ameris Bancorp will soon turn the corner and see improvement in its credit trends," he said.

Gailey noted that Ameris shares trade at a discount to industry peers "due to its asset-quality issues. … [We] think this discount is overdone."

Esterline Technologies: Morgan Joseph equity analyst Michael French reiterated a buy rating and $62 price target on shares of Esterline Technologies (ESL) on May 27.

In a note, French said the manufacturer of jet-engine parts was scheduled to report its fiscal second-quarter operating [results] after the close of trading on May 27. French expects Esterline to report sales of $367.4 million, gross profit of $117.6 million, Ebitda of $59.3 million, operating income of $40.6 million, and net income of $24.8 million, or 82¢ per diluted share.

"We believe Esterline is very well-positioned in a number of growth areas, such as cockpit retrofitting and electronic avionic display markets," French said.

GameStop: Janney Montgomery Scott analyst Tony Wible raised a rating on shares of GameStop (GME) to buy from neutral on May 27. He raised a fair value estimate on the shares to $27 from $24.

Wible said in a note that the rating change on the video-game retailer was based on the launch of new loyalty and digital programs that could improve its position in the "evolving" video-game market; the potential for growth in 3D video games; the launch of new gaming hardware; and the potential revival of casual games through new peripherals.

"While competitive risks remain and questions about the health of the game cycle linger, publisher comments suggest digital threats are contained for now, expectations have come down over the past year, and GME is taking steps to minimize transitional risks," Wible said. He noted, too, that the company "also has the cash flow to stabilize or improve the trading multiple."


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