American Eagle Outfitters (NYSE:AEO) Has Margin Opportunties

Even with sourcing challenges, American Eagle Outfitters (NYSE:AEO) has margin opportunities heading into 2011, and UBS (NYSE:UBS) say they're maintaining their "Neutral" rating on them.

UBS said, "We are encouraged by inventory improvement, store closures (25-30 NY) and cost cuts, all of which are boosting EPS, but it is consistency of product as well as comp and gross margin gains that we expect to move the dial on earnings and potentially get us more constructive on AEO. We believe these remain wildcards into 4Q and 2011 given we are in an early inning of a product turnaround and given increasing sourcing pressures NY. However, AEO falls into the bucket of companies that have a potential margin oppty despite sourcing headwinds, so we’re keeping a close eye."

Full year earnings estimates for 2010 were raised from $1.02 to $1.09 and full year 2011 from $1.04 to $1.14. Earnings projections for the fourth-quarter 2010 were also raised from $0.43 to $0.51.

American Eagle closed Friday at $16.25, falling $0.04, or 0.25 percent. UBS has a price target of $17 on them, increasing it from $16.