Aeropostale (ARO) - Upgrading to Outperform

Upgrading ARO to Outperform as the recent pullback creates an attractive entry point with shares trading at 12x our FY08 EPS estimate of $2.06...Inventory concerns seem overblown as it's due to the Easter shift and was disclosed on the last earnings call...We believe the company's recent comp momentum is worthy of a premium as ARO comps have outperformed the teen space by anywhere from 380bps – 1150bps over the past six months and by an average of 810bps over the past three months...While we have no insight into where management will guide, it's worth pointing out that ARO has posted upside to EPS guidance in each of the past eight quarters. We're extremely comfortable with our $0.22 but suspect the company takes a more conservative approach to annual guidance and initiate an FY08 outlook in the $2 range (vs. our $2.06).