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1 pt

Aeropostale (ARO) - Upgrading to Outperform

 Mar 12, 2008 05:17 AM UTC
Symbol Sentiment Start Return Closed
ARO Positive 03/12/08 -40.43% --

Upgrading ARO to Outperform as the recent pullback creates an attractive entry point with shares trading at 12x our FY08 EPS estimate of $2.06...Inventory concerns seem overblown as it's due to the Easter shift and was disclosed on the last earnings call...We believe the company's recent comp momentum is worthy of a premium as ARO comps have outperformed the teen space by anywhere from 380bps – 1150bps over the past six months and by an average of 810bps over the past three months...While we have no insight into where management will guide, it's worth pointing out that ARO has posted upside to EPS guidance in each of the past eight quarters. We're extremely comfortable with our $0.22 but suspect the company takes a more conservative approach to annual guidance and initiate an FY08 outlook in the $2 range (vs. our $2.06).

Blogger & Analyst Views:

N/A
-37.81%
 risk: aggressive
Graphic_rating_buy ARO   ARO - Believe Good Times Will Continue

We reiterate our Buy rating, $32 target price and estimates with
Aeropostale scheduled to announce 4Q07 results after the close on
Thursday. ARO has declined over 14% (versus a 6.2% decline in the S&P Retailing Index) in the past three trading days after announcing solid February same-store sales of +7%, driven by a downgrade to Sell by a leading investment bank and fears that current growth is unsustainable. Frankly, we believe this downdraft presents investors with a prime opportunity to invest in what we believe will be one of the few retailing winners in the current economic slowdown; we believe the 4Q07 conference call will go a long way to dissuade the shorts and demonstrate the strength of the Aeropostale business model. We would remain buyers of ARO and believe, with the stock now trading at 11.5x our 2008 EPS projections, that the risk/reward remains compelling.


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