What happened

Shares of American Eagle Outfitters (NYSE:AEO) are trading 4% higher Wednesday morning, after an analyst at J.P. Morgan upgraded his outlook on the stock to "overweight" with a $17 price target, some 47% above where it closed yesterday. 

So what

TheFly.com says analyst Matthew Boss indicates that the 45% decline in the apparel retailer's stock over the last 18 months means the market has "mis-priced" its shares and is ignoring strong growth drivers for the company.

Six teens in American Eagle Outfitters clothing sit on a cluster of large rocks.

Image source: American Eagle Outfitters.

Among those growth drivers is American Eagle's lingerie brand, Aerie, which another analyst has separately said could become a $3 billion business in the next five years, stealing market share away from L Brands' Victoria's Secret label.

Now what

Boss says the back-to-school season's disruption because of the coronavirus pandemic is more than offset by Aerie's potential. In addition, he says that American Eagle's commitment to closing stores is a tailwind for the retailer. 

He believes the $11.50 price range American Eagle was trading at implies a "zero value" to the brand, even though the company generates over $3 billion in revenue annually and is the top denim retailer in the key 15- to 25-year-old demographic.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.