American Eagle Outfitters (AEO) and GAP (GPS) Financial Survey

American Eagle Outfitters (NYSE: AEO) and GAP (NYSE:GPS) are both cyclical consumer goods & services companies, but which is the better business? We will compare the two companies based on the strength of their valuation, dividends, profitability, institutional ownership, risk, analyst recommendations and earnings.

Profitability

This table compares American Eagle Outfitters and GAP’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Eagle Outfitters 4.50% 17.42% 11.63%
GAP 5.57% 27.47% 10.56%

Valuation and Earnings

This table compares American Eagle Outfitters and GAP’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
American Eagle Outfitters $3.61 billion 0.93 $212.44 million $0.91 20.73
GAP $15.52 billion 0.81 $676.00 million $2.17 14.92

GAP has higher revenue and earnings than American Eagle Outfitters. GAP is trading at a lower price-to-earnings ratio than American Eagle Outfitters, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

84.6% of American Eagle Outfitters shares are owned by institutional investors. Comparatively, 56.6% of GAP shares are owned by institutional investors. 5.8% of American Eagle Outfitters shares are owned by insiders. Comparatively, 27.3% of GAP shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Dividends

American Eagle Outfitters pays an annual dividend of $0.50 per share and has a dividend yield of 2.7%. GAP pays an annual dividend of $0.92 per share and has a dividend yield of 2.8%. American Eagle Outfitters pays out 54.9% of its earnings in the form of a dividend. GAP pays out 42.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. GAP is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a summary of recent ratings for American Eagle Outfitters and GAP, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Eagle Outfitters 1 6 9 0 2.50
GAP 3 18 5 0 2.08

American Eagle Outfitters presently has a consensus target price of $16.25, suggesting a potential downside of 13.84%. GAP has a consensus target price of $28.81, suggesting a potential downside of 10.99%. Given GAP’s higher probable upside, analysts clearly believe GAP is more favorable than American Eagle Outfitters.

Volatility and Risk

American Eagle Outfitters has a beta of 1.14, indicating that its share price is 14% more volatile than the S&P 500. Comparatively, GAP has a beta of 0.86, indicating that its share price is 14% less volatile than the S&P 500.

Summary

GAP beats American Eagle Outfitters on 9 of the 16 factors compared between the two stocks.

American Eagle Outfitters Company Profile

American Eagle Outfitters, Inc. (AEO Inc.) is a multi-brand specialty retailer. The Company offers a range of apparel and accessories for men and women under the American Eagle Outfitters Brand (AEO Brand), and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. As of January 28, 2017, the Company operated over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally. Its company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom. Its other brands include Tailgate and Todd Snyder New York. Tailgate is an apparel brand with a college town store concept. Todd Snyder New York is a menswear brand. As of January 28, 2017, the AEO brand operated 943 stores and online at www.ae.com.

GAP Company Profile

The Gap, Inc. (Gap Inc.) is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Its products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. In addition to operating in the specialty, outlet, online and franchise channels, it also uses the Company’s omni-channel capabilities to bridge the digital world and physical stores. Its omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store are tailored across its portfolio of brands. It also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico.

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