American Eagle Outfitters (AEO) shares jumped after the retailer delivered third-quarter results that suggest its turnaround efforts are actually working. Sometimes companies talk about inflection points that never materialize, but this one looks real enough to change some minds on Wall Street.

The Numbers Tell a Recovery Story

American Eagle reported third-quarter revenue of $1.36 billion, beating analyst estimates of $1.32 billion. Adjusted earnings came in at 53 cents per share, crushing expectations of 44 cents per share.

More importantly, the company raised fourth-quarter operating income guidance to a range of $155 million to $160 million, citing strong sales trends. Comparable sales are expected to climb 8% to 9% year-over-year in the fourth quarter.

Management pointed to what they called a "significant trend change" across merchandising, marketing, and operations. That's corporate speak, but the results back it up.

JPMorgan Changes Its Mind

JPMorgan analyst Matthew Boss upgraded American Eagle to Neutral from Underweight and lifted his price target to $20 from $14. When an analyst moves from bearish to neutral, it means something shifted.

Boss expects revenue growth to stabilize around 3% through fiscal 2026 and 2027 following the third-quarter turnaround for both the AE and Aerie brands. The turnaround was driven by improved product and marketing after the company stumbled with its Spring/Summer 2025 assortment.

The analyst raised his adjusted EPS estimate to $1.36 for 2025, up from $1.16 and above the Street view of $1.14. For 2026, he sees $1.60 versus his prior $1.29 estimate and consensus of $1.44. His 2027 forecast sits at $1.64 compared to the street view of $1.56.

But Boss isn't declaring total victory. Operating margins remain roughly 100 basis points below pre-COVID pandemic levels, and competitive pressures may limit further margin gains.

Aerie Finally Delivers Again

Telsey Advisory Group analyst Dana Telsey maintained a Market Perform rating but raised her price target to $25 from $18.

The real news here is Aerie. Comparable sales grew double-digits for the first time since the fourth quarter of 2023, while the main AE brand returned to positive growth. That combination drove record revenue growth.

Telsey notes that management appears to have successfully addressed earlier operational and assortment challenges, supported by impactful marketing that boosted brand engagement heading into the holiday season.

The caution? American Eagle has historically performed well during peak periods, but sustaining growth in slower periods remains a challenge. And while AE comps turned positive in the third quarter, the brand still trails Aerie significantly, and its path to sustained improvement remains unclear.

Telsey now projects fiscal 2025 total revenue of $5.47 billion versus her prior $5.33 billion estimate, with EPS of $1.33 compared to $1.13 earlier. She also raised her fiscal 2026 EPS estimate to $1.54 from $1.40.

Price Action: American Eagle Outfitters shares traded up 14.69% to $23.89 on Wednesday.