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BOSTON (TheStreet Ratings) -- Urban Outfitters (URBN) - Get Free Report is expected by analysts to report a 23% drop in profit, yet increase revenue by 10% when it publishes second-quarter earnings Tuesday. Struggles in meeting the fashion demands of women has led to depressed earnings over the past several quarters.

Analysts are forecasting Urban Outfitters will say quarterly profit fell to $0.32 per share, compared with 42 cents a year earlier. Revenue is estimated to increase to $604 million from $552 million a year earlier, according to a poll of analysts by Thomson Reuters. Growth at the company's Free People and Anthropologie stores is expected to offset weakness at the flaghship stores.

The following is taken from a first-quarter report published by

TheStreet Ratings

, an independent-research unit of

TheStreet

that uses a quantitative model to evaluate stocks.

Urban Outfitter's earnings per share declined by 25.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Urban increased its bottom line by earning $1.61 versus $1.28 in the prior year. For the next year, the market is expecting a contraction of 5.0% in earnings ($1.53 versus $1.61).

We rate Urban Outfitters a "buy." This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Our model maintains a $33 target on share of Urban Outfitters, reflecting the potential for 18% upside from current levels.

The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, revenue growth, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market, Urban Outfitter's return on equity exceeds that of both the industry average and the S&P 500.

>>For upcoming earnings and estimates, see our

Earnings Calendar

.

In taking a look at the balance sheet, Urban Outfitters has strong liquidity. Currently, the quick ratio is 1.69, which shows the ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year, indicating deteriorating cash flow.

From a valuation perspective, Urban Outfitter's price-to-earnings ratio indicates a premium compared to an average of 15.73 for the Specialty Retail industry and a premium compared to the S&P 500 average of 14.42. For additional comparison, its price-to-book ratio of 3.44 indicates a premium versus the S&P 500 average of 1.94 and a premium versus the industry average of 2.72. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium.

Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser.

Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.