American Eagle Outfitters (NYSE:AEO) continues to soar to new heights on the strength of its Aerie lingerie and loungewear brand.

The fast-growing apparel business is expected to see double-digit sales growth again when the retailer reports fourth-quarter earnings next week, and Cowen analyst Oliver Chen upgraded his outlook on the retailer to outperform from market perform because he sees Aerie hitting $2 billion in sales within three years.

three woman standing in and around a car wearing Aerie clothing.

Image source: Aerie.

Wall Street was already bullish on Aerie's growth, with one analyst estimating the lingerie outfit could be a $3 billion business in five years. Management is expecting it to cross over the $1 billion revenue threshold this quarter. 

The brand has seen phenomenal growth during the pandemic, with third-quarter revenue surging 34%, its 24th consecutive quarter of double-digit growth, as digital sales surged 83%. At the same time, the America Eagle brand continues to contract.

That's why management is leaning into the lingerie and loungewear company. It's opening more stores, which gives it a chance to gain on L Brands' (NYSE:LB) Victoria's Secret. The lingerie leader remains in a state of ennui as management can't seem to decide how best to shed the business. It will either sell it or spin it off, but it has tried that before without success.

While Victoria's Secret remains the industry leader with $6.8 billion in annual sales, at its current rate of decline and Aerie's accelerating growth, the two retailerscould cross trajectories sooner rather than later.

Chen also raised his price target on American Eagle Outfitters to $31 per share from $25 per share.

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