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TheStreet Open House

Why Urban Outfitters (URBN) Was Upgraded

NEW YORK (TheStreet) -- Urban Outfitters (URBN) was upgraded by Brean Capital to "buy" from "hold" Monday.

Urabn Outfitters was gaining 1.5% to $36.79 in morning trading.

The analyst firm set a price target of $43 for the retailer. Analyst Eric Beder said that a pricing survey and store tours suggest Urban Outfitters is turning the corner, with both Anthropologie and Free People remaining strong.

"Further, with URBN within 10% of its 52-week low and Street sentiment on the name among the weakest we can recall, we believe the risk/reward in the name is now compelling," Beder wrote. "Our new price target of $43 translates to 17.5X our FY16 EPS projection of $2.47 (15.4X cash adjusted); we believe URBN, as one of the few visible growth stories in retailing, is well worth a premium multiple."

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Separately, TheStreet Ratings team rates URBAN OUTFITTERS INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate URBAN OUTFITTERS INC (URBN) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, expanding profit margins and compelling growth in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • URBN's revenue growth has slightly outpaced the industry average of 7.0%. Since the same quarter one year prior, revenues rose by 11.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • URBN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.46, which illustrates the ability to avoid short-term cash problems.
  • URBAN OUTFITTERS INC has improved earnings per share by 17.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, URBAN OUTFITTERS INC increased its bottom line by earning $1.61 versus $1.18 in the prior year. This year, the market expects an improvement in earnings ($1.86 versus $1.61).
  • 42.05% is the gross profit margin for URBAN OUTFITTERS INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 9.07% is above that of the industry average.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 18.0% when compared to the same quarter one year prior, going from $59.52 million to $70.26 million.

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