REAL CLIENT MANAGED PORTFOLIO INVESTMENT RECOMMENDATION

TO: Real Client Managed Portfolio, Fall 2010 Class

FROM: Ruonan Ding, Rajani Meka, Cardo Martinez, Meiling Liu, Prateek Sharma

SUBJECT: American Eagle Outfitters, Inc. Investment Recommendation

DATE: November 1, 2010

Company Overview

American Eagle Outfitters, Inc. offers on-trend clothing, accessories and personal care products. It operates under the American Eagle (AE), aerie and 77kids brands and online at ae.com. As of July 31, 2010, it operated 1083 stores which included 934 American Eagle Outfitters stores in the United States and Canada, 144 aerie stand-alone stores and five 77kids stores. The company completed the closure of MARTIN+OSA during the second quarter of fiscal 2010. For the year ending Jan 2010, the company reported sales of approx. $3bn.

Current Position

American Eagle’s shares were bought several times in transaction history from 1999 to 2000, resulting in a position of 1000 shares. AEO underwent a stock split 3 times: in 2001, 2005, and 2006, respectively. RCMP sold 600 and then 700 shares in 2005, sold 400 shares in Nov 06 and 450 shares in Nov 07. RCMP currently holds 2500 shares, the stock closed on $15.62 on Nov 1 2010.

Auction Rate Securities and Liquidity

As part of its short term investment policy in prior years, the company invested primarily in Auction Rate Securities (ARS). The carrying value of all ARS as of July 31, 2010 was $172.5M, net of impairment of $10.9M ($6.8M, net of tax). ARS were included both in short-term and long-term investments depending on their maturity. The management believes that the current illiquidity and impairments of these investments is temporary and related to factors other than credit losses. However, the Company continues to monitor the market for ARS and ARPS and consider the impact, if any, on the fair value of its investments.

In spite of the lack of liquidity relating to ARS and ARPS investments, management anticipates little to no impact on its ability to fund ongoing operations. The company believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements.

Recommendation

Using conservative assumptions our DCF model values the stock in the range $16-18. The multiples analysis values the stock between $18-22. At a current market price of $15.62, we think the stock is fairly valued with limited upside potential. We recommend a SALE of 500 shares (20% of current holding) at a limit price of $17/share, assuming the price rises to this level.

(Good till 12/6/2010)