American Eagle Outfitters (NYSE: AEO) and Carter’s (NYSE:CRI) are both mid-cap apparel & accessories retailers – nec companies, but which is the better stock? We will compare the two businesses based on the strength of their risk, profitability, analyst recommendations, institutional ownership, dividends, valuation and earnings.

Insider and Institutional Ownership

83.5% of American Eagle Outfitters shares are held by institutional investors. Comparatively, 96.2% of Carter’s shares are held by institutional investors. 5.8% of American Eagle Outfitters shares are held by company insiders. Comparatively, 3.1% of Carter’s shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Analyst Recommendations

This is a breakdown of recent recommendations for American Eagle Outfitters and Carter’s, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Eagle Outfitters 2 7 10 0 2.42
Carter’s 0 3 9 0 2.75

American Eagle Outfitters presently has a consensus target price of $14.76, suggesting a potential downside of 1.12%. Carter’s has a consensus target price of $104.80, suggesting a potential downside of 0.26%. Given Carter’s’ stronger consensus rating and higher possible upside, analysts plainly believe Carter’s is more favorable than American Eagle Outfitters.

Profitability

This table compares American Eagle Outfitters and Carter’s’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Eagle Outfitters 4.85% 18.25% 12.17%
Carter’s 7.69% 33.38% 12.91%

Earnings and Valuation

This table compares American Eagle Outfitters and Carter’s’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
American Eagle Outfitters $3.61 billion 0.73 $212.44 million $0.96 15.55
Carter’s $3.20 billion 1.55 $258.10 million $5.20 20.21

Carter’s has higher revenue, but lower earnings than American Eagle Outfitters. American Eagle Outfitters is trading at a lower price-to-earnings ratio than Carter’s, indicating that it is currently the more affordable of the two stocks.

Risk & Volatility

American Eagle Outfitters has a beta of 1.09, suggesting that its stock price is 9% more volatile than the S&P 500. Comparatively, Carter’s has a beta of 0.33, suggesting that its stock price is 67% less volatile than the S&P 500.

Dividends

American Eagle Outfitters pays an annual dividend of $0.50 per share and has a dividend yield of 3.3%. Carter’s pays an annual dividend of $1.48 per share and has a dividend yield of 1.4%. American Eagle Outfitters pays out 52.1% of its earnings in the form of a dividend. Carter’s pays out 28.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Carter’s has increased its dividend for 3 consecutive years.

Summary

Carter’s beats American Eagle Outfitters on 12 of the 17 factors compared between the two stocks.

About American Eagle Outfitters

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.

About Carter’s

Carter’s, Inc. (Carter’s) is a marketer of apparel for babies and young children in the United States and Canada. The Company owns two brand names in the children’s apparel industry, Carter’s and OshKosh B’gosh (OshKosh). The Company operates through five segments: Carter’s Retail, Carter’s Wholesale, OshKosh Retail, OshKosh Wholesale and International. Its International segment includes company-operated retail stores and online Websites, wholesale operations, and royalty income from its international licensees. It markets products for consumers, and offer various product categories, including baby, sleepwear, play clothes, and related accessories. Its multi-channel international business model – retail stores, online and wholesale – enables it to reach a range of consumers around the world. As of December 31, 2016, its channels included approximately 18,000 wholesale locations, 792 stores in the United States, 164 stores in Canada, and its Canadian and the United States Websites.

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