BofA: American Eagle shares could come down 20%. It's not about Sydney Sweeney.

BofA has downgraded American Eagle, warning the stock could drop more than 20%. Analysts said the impact of U.S. tariffs is so severe that even the company’s high-profile advertising campaign featuring actress Sydney Sweeney is unlikely to offset the pressure.

Yesterday, August 25, analysts with BofA Securities downgraded American Eagle to "underperform" from "neutral," saying it is a “tough time for a turnaround” despite the recent gains. The bank cut its target price to $10 per share from $11 per share, a call that suggests the shares could fall nearly 20% from their level yesterday morning, writes Barron's.

American Eagle is in a “tough position to navigate tariffs,” with little power to pass higher costs on to consumers, BofA said.

BofA cut its EPS forecasts for American Eagle by 8% for this year and by 30% for next year.

Shares of American Eagle soared in late July following the launch of a promotional campaign with actress Sydney Sweeney. They jumped again when Trump called it "the 'hottest' ad out there." While the Sweeney campaign, one of the biggest celebrity collaborations in the company's history and the most expensive to date, caused a stir, BofA analysts write, “we do not assign a high likelihood that momentum from this campaign can fully inflect the business over the long run."

Clothing retailers have been dealing with more muted demand over the past three years, as inflation forces some shoppers to cover expenses for more important things, MarketWatch reports. As tariffs start to kick in, American Eagle, in its most recent annual report, said that a “substantial portion of our products are manufactured abroad, including in China,” which is the biggest target in Trump’s trade war. American Eagle also withdrew its outlook for fiscal 2025 and swung to a loss in its fiscal first quarter, contrary to expectations.

BofA is not the first to downgrade the jeans maker. On July 28, analyst Matt Boss of JPMorgan revised downward his rating on American Eagle from "neutral" to "underweight" with a target price of $9 per share. He forecast second-quarter EPS of $0.18, which is 10% below the Wall Street consensus, Investing.com writes. Boss cites weak product performance, sustained margin pressure, and a lack of near-term catalysts. The gross margin is expected to fall because of foreign exchange and Trump tariff headwinds, higher markdowns to clear inventory, and deleverage from negative comps, Boss argues.

JPMorgan also forecasts third-quarter EPS of $0.36, 12% below consensus, due to increased SG&A spend from advertising campaigns and continued pressure on gross margins. For the full year, it expects EPS of $0.75, also below consensus by nearly 4%, and warns of continued downside risks for earnings into 2026. For next year, JPMorgan's forecast is 15% below market expectations.

The investment community will be closely monitoring the performance of American Eagle in its forthcoming earnings report, Zacks believes. The company is scheduled to release its earnings on September 3. 

The company's upcoming EPS is projected at $0.20, a 48.7% drop compared to the same quarter of the previous year. Meanwhile, Zacks' latest consensus estimate is for revenue of $1.23 billion, down 4.8% year over year.

Since the start of the year, American Eagle Outfitters’ shares have dropped 25% to $12.50 per share. Skepticism is widespread on Wall Street, writes Barron's. Only two of 12 analysts tracked by FactSet rare the stock at "buy"; seven have it at "hold" and three at "sell" or the equivalent. The MarketWatch consensus target price is $11.50 per share.

The stock trades at a forward P/E ratio of 15.96, a discount to the apparel industry average of 17.97, Zacks notes.

The AI translation of this story was reviewed by a human editor.