Intrinsic value of American Eagle Outfitters, Inc. - AEO

Previous Close

$16.07

  Intrinsic Value

$17.19

stock screener

  Rating & Target

hold

+7%

Previous close

$16.07

 
Intrinsic value

$17.19

 
Up/down potential

+7%

 
Rating

hold

We calculate the intrinsic value of AEO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  4,117
  4,211
  4,320
  4,441
  4,576
  4,724
  4,884
  5,059
  5,246
  5,447
  5,663
  5,893
  6,137
  6,397
  6,673
  6,966
  7,275
  7,603
  7,949
  8,314
  8,699
  9,106
  9,534
  9,985
  10,461
  10,961
  11,488
  12,043
  12,626
  13,239
Variable operating expenses, $m
  3,524
  3,605
  3,697
  3,801
  3,916
  4,042
  4,180
  4,329
  4,489
  4,661
  4,839
  5,036
  5,245
  5,467
  5,703
  5,953
  6,217
  6,497
  6,793
  7,105
  7,434
  7,781
  8,147
  8,533
  8,939
  9,367
  9,817
  10,291
  10,790
  11,314
Fixed operating expenses, $m
  254
  260
  266
  272
  278
  284
  290
  296
  303
  310
  316
  323
  330
  338
  345
  353
  360
  368
  377
  385
  393
  402
  411
  420
  429
  438
  448
  458
  468
  478
Total operating expenses, $m
  3,778
  3,865
  3,963
  4,073
  4,194
  4,326
  4,470
  4,625
  4,792
  4,971
  5,155
  5,359
  5,575
  5,805
  6,048
  6,306
  6,577
  6,865
  7,170
  7,490
  7,827
  8,183
  8,558
  8,953
  9,368
  9,805
  10,265
  10,749
  11,258
  11,792
Operating income, $m
  338
  347
  357
  368
  382
  397
  415
  434
  454
  477
  507
  534
  562
  593
  625
  660
  698
  737
  780
  824
  872
  922
  976
  1,032
  1,092
  1,156
  1,223
  1,293
  1,368
  1,447
EBITDA, $m
  500
  512
  526
  542
  561
  582
  605
  631
  658
  689
  721
  756
  794
  835
  878
  924
  973
  1,025
  1,080
  1,139
  1,201
  1,267
  1,336
  1,410
  1,488
  1,570
  1,657
  1,749
  1,845
  1,948
Interest expense (income), $m
  1
  0
  1
  2
  2
  3
  5
  6
  7
  8
  10
  12
  13
  15
  17
  20
  22
  24
  27
  29
  32
  35
  39
  42
  45
  49
  53
  57
  62
  66
  71
Earnings before tax, $m
  338
  346
  355
  366
  379
  393
  409
  426
  446
  467
  496
  520
  547
  575
  606
  639
  673
  711
  750
  792
  837
  884
  934
  987
  1,043
  1,103
  1,166
  1,232
  1,302
  1,376
Tax expense, $m
  91
  93
  96
  99
  102
  106
  110
  115
  120
  126
  134
  140
  148
  155
  164
  172
  182
  192
  203
  214
  226
  239
  252
  267
  282
  298
  315
  333
  352
  372
Net income, $m
  247
  253
  259
  267
  276
  287
  298
  311
  325
  341
  362
  380
  399
  420
  442
  466
  492
  519
  548
  578
  611
  645
  682
  721
  762
  805
  851
  899
  951
  1,005

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,942
  1,987
  2,038
  2,095
  2,158
  2,228
  2,304
  2,386
  2,475
  2,570
  2,671
  2,780
  2,895
  3,018
  3,148
  3,286
  3,432
  3,586
  3,749
  3,922
  4,103
  4,295
  4,497
  4,710
  4,934
  5,170
  5,419
  5,680
  5,956
  6,245
Adjusted assets (=assets-cash), $m
  1,942
  1,987
  2,038
  2,095
  2,158
  2,228
  2,304
  2,386
  2,475
  2,570
  2,671
  2,780
  2,895
  3,018
  3,148
  3,286
  3,432
  3,586
  3,749
  3,922
  4,103
  4,295
  4,497
  4,710
  4,934
  5,170
  5,419
  5,680
  5,956
  6,245
Revenue / Adjusted assets
  2.120
  2.119
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.119
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
Average production assets, $m
  778
  796
  816
  839
  865
  893
  923
  956
  992
  1,030
  1,070
  1,114
  1,160
  1,209
  1,261
  1,317
  1,375
  1,437
  1,502
  1,571
  1,644
  1,721
  1,802
  1,887
  1,977
  2,072
  2,171
  2,276
  2,386
  2,502
Working capital, $m
  78
  80
  82
  84
  87
  90
  93
  96
  100
  104
  108
  112
  117
  122
  127
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  208
  218
  229
  240
  252
Total debt, $m
  13
  28
  44
  63
  83
  106
  131
  157
  186
  217
  250
  285
  322
  362
  404
  449
  496
  546
  599
  655
  714
  776
  841
  910
  983
  1,059
  1,140
  1,225
  1,314
  1,408
Total liabilities, $m
  629
  644
  660
  679
  699
  722
  746
  773
  802
  833
  865
  901
  938
  978
  1,020
  1,065
  1,112
  1,162
  1,215
  1,271
  1,330
  1,392
  1,457
  1,526
  1,599
  1,675
  1,756
  1,840
  1,930
  2,023
Total equity, $m
  1,313
  1,343
  1,377
  1,416
  1,459
  1,506
  1,557
  1,613
  1,673
  1,737
  1,806
  1,879
  1,957
  2,040
  2,128
  2,221
  2,320
  2,424
  2,535
  2,651
  2,774
  2,904
  3,040
  3,184
  3,336
  3,495
  3,663
  3,840
  4,026
  4,222
Total liabilities and equity, $m
  1,942
  1,987
  2,037
  2,095
  2,158
  2,228
  2,303
  2,386
  2,475
  2,570
  2,671
  2,780
  2,895
  3,018
  3,148
  3,286
  3,432
  3,586
  3,750
  3,922
  4,104
  4,296
  4,497
  4,710
  4,935
  5,170
  5,419
  5,680
  5,956
  6,245
Debt-to-equity ratio
  0.010
  0.020
  0.030
  0.040
  0.060
  0.070
  0.080
  0.100
  0.110
  0.120
  0.140
  0.150
  0.160
  0.180
  0.190
  0.200
  0.210
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.290
  0.290
  0.300
  0.310
  0.320
  0.330
  0.330
Adjusted equity ratio
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676
  0.676

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  247
  253
  259
  267
  276
  287
  298
  311
  325
  341
  362
  380
  399
  420
  442
  466
  492
  519
  548
  578
  611
  645
  682
  721
  762
  805
  851
  899
  951
  1,005
Depreciation, amort., depletion, $m
  161
  165
  169
  174
  179
  184
  190
  197
  204
  212
  214
  223
  232
  242
  252
  263
  275
  287
  300
  314
  329
  344
  360
  377
  395
  414
  434
  455
  477
  500
Funds from operations, $m
  408
  417
  428
  441
  455
  471
  489
  508
  530
  553
  576
  603
  631
  662
  695
  729
  767
  806
  848
  892
  940
  989
  1,042
  1,098
  1,157
  1,219
  1,285
  1,355
  1,428
  1,505
Change in working capital, $m
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
Cash from operations, $m
  407
  416
  426
  439
  453
  468
  486
  505
  526
  549
  572
  598
  627
  657
  689
  724
  761
  800
  841
  886
  932
  982
  1,034
  1,089
  1,148
  1,210
  1,275
  1,344
  1,417
  1,493
Maintenance CAPEX, $m
  -153
  -156
  -159
  -163
  -168
  -173
  -179
  -185
  -191
  -198
  -206
  -214
  -223
  -232
  -242
  -252
  -263
  -275
  -287
  -300
  -314
  -329
  -344
  -360
  -377
  -395
  -414
  -434
  -455
  -477
New CAPEX, $m
  -15
  -18
  -20
  -23
  -25
  -28
  -30
  -33
  -35
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -59
  -62
  -65
  -69
  -73
  -77
  -81
  -85
  -90
  -95
  -100
  -105
  -110
  -116
Cash from investing activities, $m
  -168
  -174
  -179
  -186
  -193
  -201
  -209
  -218
  -226
  -236
  -247
  -257
  -269
  -281
  -294
  -307
  -322
  -337
  -352
  -369
  -387
  -406
  -425
  -445
  -467
  -490
  -514
  -539
  -565
  -593
Free cash flow, $m
  239
  242
  247
  252
  259
  268
  277
  288
  299
  312
  325
  341
  358
  376
  395
  416
  439
  463
  489
  516
  545
  576
  609
  644
  681
  720
  761
  805
  851
  900
Issuance/(repayment) of debt, $m
  13
  14
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  73
  76
  81
  85
  89
  94
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  13
  14
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  73
  76
  81
  85
  89
  94
Total cash flow (excl. dividends), $m
  253
  257
  263
  271
  280
  290
  301
  314
  328
  343
  358
  376
  395
  415
  438
  461
  486
  513
  542
  572
  604
  638
  674
  713
  753
  796
  842
  890
  940
  994
Retained Cash Flow (-), $m
  -25
  -30
  -35
  -39
  -43
  -47
  -51
  -56
  -60
  -64
  -69
  -73
  -78
  -83
  -88
  -93
  -99
  -104
  -110
  -116
  -123
  -130
  -137
  -144
  -152
  -160
  -168
  -177
  -186
  -196
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  228
  226
  229
  232
  237
  243
  250
  259
  268
  279
  289
  302
  317
  333
  350
  368
  388
  409
  431
  455
  481
  509
  538
  569
  602
  637
  674
  713
  754
  798
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  218
  207
  199
  191
  184
  176
  169
  162
  154
  146
  137
  129
  120
  112
  103
  93
  84
  75
  66
  58
  50
  42
  35
  29
  23
  19
  14
  11
  8
  6
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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.

FINANCIAL RATIOS  of  American Eagle Outfitters, Inc. (AEO)

Valuation Ratios
P/E Ratio 13.8
Price to Sales 0.8
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 8
Price to Free Cash Flow 14.4
Growth Rates
Sales Growth Rate 2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.5%
Cap. Spend. - 3 Yr. Gr. Rate -11.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 336
Management Effectiveness
Return On Assets 12.5%
Ret/ On Assets - 3 Yr. Avg. 10.2%
Return On Total Capital 18.8%
Ret/ On T. Cap. - 3 Yr. Avg. 15.2%
Return On Equity 18.8%
Return On Equity - 3 Yr. Avg. 15.2%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 37.9%
Gross Margin - 3 Yr. Avg. 36.7%
EBITDA Margin 13.7%
EBITDA Margin - 3 Yr. Avg. 12.1%
Operating Margin 9.2%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin 9.3%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 5.9%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 36.7%
Eff/ Tax Rate - 3 Yr. Avg. 38.3%
Payout Ratio 42.9%

AEO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AEO stock intrinsic value calculation we used $4036 million for the last fiscal year's total revenue generated by American Eagle Outfitters, Inc.. The default revenue input number comes from 0001 income statement of American Eagle Outfitters, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AEO stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AEO is calculated based on our internal credit rating of American Eagle Outfitters, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of American Eagle Outfitters, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AEO stock the variable cost ratio is equal to 85.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $249 million in the base year in the intrinsic value calculation for AEO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for American Eagle Outfitters, Inc..

Corporate tax rate of 27% is the nominal tax rate for American Eagle Outfitters, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AEO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AEO are equal to 18.9%.

Life of production assets of 4.7 years is the average useful life of capital assets used in American Eagle Outfitters, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AEO is equal to 1.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1287.555 million for American Eagle Outfitters, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 176.612 million for American Eagle Outfitters, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of American Eagle Outfitters, Inc. at the current share price and the inputted number of shares is $2.8 billion.

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