Morgan Stanley Underweight On American Eagle Outfitters, Inc. (AEO)

Morgan Stanley has an Underweight rating on shares of American Eagle Outfitters, Inc. AEO. In a note to investors Morgan Stanley writes, "We believe the share price will fall in absolute terms over the next 30 days. Competitor ANF recently announced plans to move away from focusing on gross margin rate to driving higher gross profit dollars. As the price leader in the teen space, we believe ANF's more competitive promotional strategy will lead to market share losses at lower-priced AEO and ARO. Yesterday, ANF reported a +10% increase in 1Q same store sales, while ARO reported a (7)% decline. ARO's stock came under more pressure (-17%) than AEO (-6%), but we think 2011 EPS downside could be similar. We are proactively lowering our 1Q estimate for AEO from $0.15 to $0.11, assuming a (6)% same store sales decrease from a (3)% decline prior. Our estimate is now well below consensus at $0.15 and we think the stock will trade down ahead of or on the scheduled report date, Wednesday, May 25. We estimate that there is about a 60% to 70% or "likely" probability for the scenario." Shares of AEO lost 92 cents yesterday to close at $14.79, a loss of 5.86%.