Call Traders Blast Surging Apparel Stock After Earnings

American Eagle Outfitters beat top- and bottom-line expectations

American Eagle Outfitters Inc (NYSE:AEO) is up 6.7% at $25.03 at last check, after the apparel retailer beat top- and bottom-line estimates for the fourth quarter. Strong demand for its products during the holiday season and fewer discounts contributed to the upbeat results.

American Eagle stock is pacing for its best single-day percentage gain since November, earlier notching a fresh two-year high of $26.44. The stock has continued to climb since bouncing off support at its 60-day moving average in early February, and sports a 73% year-over-year lead. 

Options volume is running at nine times the intraday average, with 12,000 calls and 6,542 puts exchanged so far today. The most popular contract by far is the weekly 3/8 26-strike call.

Analysts have yet to chime in, but eight of the 10 analysts in question call AEO a tepid “hold” or worse, while the 12-month consensus target price of $22 is a 12.7% discount to current levels. This leaves ample room for upgrades and/or price-target hikes moving forward, which would generate tailwinds.

Short interest is already down 26% in the last two reporting periods, but 8.1% of the stock’s available float is sold short. A continued unwinding of this pessimism could push AEO even higher.

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