It's been clear for some time that American Eagle Outfitters' (NYSE:AEO) best-performing business is its Aerie lingerie chain, and though revenue for the brand was down slightly in the first quarter due to store closures necessitated by the COVID-19 pandemic, demand remained strong and far outstripped that for the American Eagle brand itself.

That sort of dynamic has persuaded at least one analyst that Aerie could become a $3 billion business over the next five years for the apparel retailer.

Aerie plus-size models

#AerieREAL models, part of the brand's effort to encourage positive body image. Image source: Aerie.

Potent growth potential

Jefferies analyst Janine Stichter says Aerie will continue to take market share from intimate apparel rivals, particularly L Brands' (NYSE:LB) ailing Victoria Secret label, which is being prepared for a spinoff

According to TheFly.com, the analyst says American Eagle's lingerie division can become a major industry player. She sees its growth accelerating, with double-digit-percentage comparable-store sales growth and mid-teen increases in store expansion.

Of course, $3 billion, while sizable, would still be less than half of the $6.8 billion in total global revenue Victoria's Secret generated last year. Yet Victoria's Secret has been around for decades while Aerie, a relative newcomer, was founded in 2006.

In the years since, though, it has become a particular favorite among young women ages 15 to 25, and while the brand's revenue dropped 2% due to store closures last quarter -- compared to the 45% drop at American Eagle -- its digital sales during the pandemic surged 75% from last year, versus a 15% e-commerce rise at its sibling.

Aerie seems to be hitting its stride for the retailer, which may be why Stichter maintains her buy rating on American Eagle and a $20 price target on its stock, some 73% above where shares currently trade.