Ahead of the Bell: Friedman raises American Eagle

Friedman, Billings, Ramsey's Adrienne Tennant upgraded American Eagle to "Market Perform" from "Underperform" in a client note. She said the stock now accounts for Thursday's announcement that President and Chief Merchandising Officer Susan McGalla would end her 14-year career at American Eagle.

Shares of American Eagle declined sharply in the Friday session following the news. The stock gave up $2.27, or 14.4 percent, to close at $13.53.

"We now believe the share price reflects the fundamental deterioration that we expect to see over the next several months ... we believe McGalla's 14-year history with the AE brand has positively impacted the business and she will be missed," Tennant said.

Tennant said the Pittsburgh-based company is still likely to see declining same-store sales through 2008, along with challenges for the company's gross margins and women's line.

She maintained her earnings estimates and $15 price target, which implies an expected rate of return of 11 percent on the stock.

Shares of American Eagle rose 26 cents to $13.79 in premarket trading Monday.