One Teen Retailer Stands Out Among the Carnage

Teen retail stocks, once the darlings of Wall Street, are now but a pile of rubbage in investment mangers' portfolios. However, one is standing out among the crowd.

Today, veteran analyst Analyst Adrienne Yih Tennant, formerly at Janney Capital, launched coverage on the teen retail names, along with a host of other soft-line retailers, with her new firm - Wolfe Research.

Top among Tennant's teen retail picks in American Eagle Outfitters (NYSE: AEO). The stock received an 'Outperform' rating and a Top Pick rating with a year-end 2016 price target of $22, or 20% above current levels.

The analyst said despite the stock's impressive outperformance (+29% vs the S&P 500 +1%) they are positive on 1) sustainable, full-price positive comps; 2) inventory & SGA discipline; 3) strong merchandise assortment showcasing newness in key fashion trends and ongoing domination of the Teen denim category; & 4) potential upside EPS revisions.

Meanwhile Tennant's least favorite is Abercrombie & Fitch (NYSE: ANF). She rates the stock at 'Underperform' with a downside $15 price target. She cited 1) negative comps, 2) uncertainty of attracting new customer base, and 3) EPS risk will persist. The analyst does note, however, that the ~34% short position may cause volatile trading and potential short squeezes when news is not as bad as expected.

In the middle of the crowd is Aeropostale (NYSE: ARO). ARO received a 'Peer Perform' rating and $2 fair value target. The analyst is looking to the 2nd-half of this year for material improvement with the impact of refined strategy under CEO Julian Geiger. The company continues to focus on steering the company back to health by: 1) refocusing on core competencies, 2) improving supply chain to reduce average unit cost, 3) inventory control, & 4) accelerating store closures.

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