American Eagle Outfitters (NYSE: AEO) and Ross Stores (NASDAQ:ROST) are both retail/wholesale companies, but which is the superior investment? We will compare the two businesses based on the strength of their valuation, institutional ownership, analyst recommendations, profitability, earnings, dividends and risk.

Dividends

American Eagle Outfitters pays an annual dividend of $0.50 per share and has a dividend yield of 4.5%. Ross Stores pays an annual dividend of $0.64 per share and has a dividend yield of 1.1%. American Eagle Outfitters pays out 46.3% of its earnings in the form of a dividend. Ross Stores pays out 21.1% 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. American Eagle Outfitters has increased its dividend for 10 consecutive years. American Eagle Outfitters is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of current ratings and price targets for American Eagle Outfitters and Ross Stores, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Eagle Outfitters 3 7 9 0 2.32
Ross Stores 0 7 13 0 2.65

American Eagle Outfitters currently has a consensus price target of $15.08, indicating a potential upside of 34.51%. Ross Stores has a consensus price target of $70.19, indicating a potential upside of 18.58%. Given American Eagle Outfitters’ higher probable upside, research analysts plainly believe American Eagle Outfitters is more favorable than Ross Stores.

Risk & Volatility

American Eagle Outfitters has a beta of 1.09, meaning that its share price is 9% more volatile than the S&P 500. Comparatively, Ross Stores has a beta of 1.1, meaning that its share price is 10% more volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
American Eagle Outfitters 5.44% 18.95% 12.56%
Ross Stores 8.87% 42.95% 21.77%

Earnings and Valuation

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
American Eagle Outfitters $3.62 billion 0.55 $496.35 million $1.08 10.38
Ross Stores $13.33 billion 1.70 $2.19 billion $3.03 19.53

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

Institutional & Insider Ownership

89.0% of American Eagle Outfitters shares are held by institutional investors. Comparatively, 90.2% of Ross Stores shares are held by institutional investors. 5.8% of American Eagle Outfitters shares are held by company insiders. Comparatively, 2.3% of Ross Stores shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Summary

Ross Stores beats American Eagle Outfitters on 13 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 Ross Stores

Ross Stores, Inc. and its subsidiaries operate two brands of off-price retail apparel and home fashion stores-Ross Dress for Less (Ross) and dd’s DISCOUNTS. The Company is the off-price apparel and home fashion chain in the United States, with 1,340 locations in 36 states, the District of Columbia and Guam, as of January 28, 2017. The Company offers in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. The Company also operated 193 dd’s DISCOUNTS stores in 15 states as of January 28, 2017. As of January 28, 2017, the Company operated a total of 1,533 stores consisted of 1,340 Ross stores and 193 dd’s DISCOUNTS stores. As of January 28, 2017, the Company owned and operated six distribution processing facilities-three in California, one in Pennsylvania, and two in South Carolina.

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