Skip to main content
This Board Has Moved

This board has been migrated to our new platform! Check out the new home page at discussion.fool.com or click below to go directly to the new Board on the new site.

Go to the New Site
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 5
Post 469 explains why I bought American Eagle a few weeks back. I estimate its intrinsic value at $33 a share, based on the following assumptions:

GAAP earnings: $330M (trailing 12 months, per Reuters)
Earnings growth:
Years 1-5: 7%
Years 6-10: 5%
Years 11-20: 4%
Terminal: 3%
Discount rate: 10% (high-quality earnings, net cash balance sheet, insider ownership)
Share dilution: 3% a year (same as 2000-2004)

My maximum Buy price is 75% of intrinsic value, or $25. If the stock hits 115% of intrinsic value, or $38, then I will sell.

Although Yahoo Finance says American Eagle will grow 15% a year for the next five years, this seems aggressive since management is debuting a new and unproven store concept. If the Martin + Osa retail chain disappoints, then management will be distracted from its core American Eagle concept, which puts sales growth and margins at risk.

If earnings do grow 15% a year for the next five years, then American Eagles intrinsic value is $44 a share.


Hewitt

long AEOS
Print the post  

Announcements

When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.