BOSTON (AP) -- Shares of Urban Outfitters Inc. climbed on Tuesday after Morgan Stanley added the stock to its "best ideas" list.
THE SPARK: Analyst Kimberly C. Greenberger also raised the price target on the stock to $36 from $31, implying that she expects the stock to rise 22 percent in the next year from Monday's closing price.
THE BIG PICTURE: Urban Outfitters is a Philadelphia-based retail chain that owns Free People, Anthropologie and other brands. The company struggled last year with weak sales and heavy discounting, but its first-quarter earnings beat analysts' expectations with help from a 9 percent rise in sales.
THE ANALYSIS: Greenberger's note to clients said that Wall Street "underestimates the magnitude and pace of a profit recovery" at Urban Outfitters. After a management shakeup and moves to clear excess inventory, the company is "poised for a rebound" in the second half of this year, and Morgan Stanley projects earnings per share will double over three years.
Potential catalysts include improving fashion assortments, better inventory control, store growth and expansion of online sales. Those sales account for about 20 percent of total sales, one of the highest levels in retail.
The stock is "a self-help story, in contrast to peers who are depending more on better sales to recover lost margin," Greenberger wrote.
THE SHARES: Shares of Urban Outfitters rose $1.10, or 3.7 percent, to close Tuesday at $30.59. The stock has traded in a 52-week range of $21.47 to $33.90.