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What 8 Top Analysts Are Saying About Urban Outfitters

Kevin Riley

Urban Outfitters, Inc. (NASDAQ: URBN) reported Q4 earnings Monday and beat expectations.

The stock surged following the earnings release and closed at $44.06 on Tuesday, up 11.52 percent.

Numerous analysts commented on the stock, including Credit Suisse and FBR. Many analysts were positive on the stock and set price targets in the mid to upper $40 range.

Below are some quotes from analysts, along with current ratings and price targets.

Janney - Buy, $48 fair value estimate

The firm upgraded the stock based on "1) regaining inventory control, 2) evidence of product turn at UO through positive reg-price comps, 3) buyback to support/accelerate EPS, & 4) what we estimate to be over 1000 bps of long-term GM recovery potential at UO.

"We do point out," they added, "that Anthro is operating at historical peak metrics. We believe there is potential for material upside to EPS, particularly 2H15 and beyond. While the stock is + >6 percent in the AM, we choose to upgrade based on the fundamental inflection & look for opportunistic entry points to accumulate."

Bank of America - Buy, $48 price target

"[Gross margin] fell 210bp to 34.6 percent, driven by lower merchandise margin at the Urban brand. The company ended 4Q with very lean inventory (comp units -7 percent) and is refining the UO brand assortment to remove redundancy and over assortment, which should support merch margin improvement in F2016. We are modelling 100bp of F2016 GM expansion, in line with guidance.

"Our forecast is driven by gross margin expansion at UO, especially in 2H, partly offset by pressure from FX (guided as a 3 percent headwind to EPS at current rates) and the new East Coast distribution center (50bp of deleverage). We see upside if IMUs improve faster or comps accelerate."

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Morgan Stanley - Equal-weight, $35 price target

The company "posted $0.60 4Q EPS 2c ahead of MS and consensus expectations, driven by a slight beat on SG&A (22.3 percent vs 22.6 percent consensus) and a lower tax rate (35 percent vs cons 35.8 percent) related to a one-time federal tax credit, with other results roughly in-line. URBN previously released 4Q sales (+12 percent y/y) and +6 percent comps on 2/9. All three brands' comps accelerated sequentially, with the UO's +4 percent 4Q comp inflecting positive for the first quarter since 2Q13.

"Since January typically comprises only 21-22 percent of 4Q (the smallest month), this would suggest a mid teens UO January comp, an encouraging acceleration, albeit augmented by an easy compare LY (we estimate negative high teens UO comp). Most importantly, management cited mid-single digit total comp increases thus far in 1Q (vs. cons 4 percent)."

Stifel - Buy, $44 price target

"We remain convinced of the uniqueness and appeal of the Urban Outfitters division and the likelihood of continued improved performance. The ongoing strength of the Anthropologie and Free People brands supports our positive conviction regarding URBN shares. We remain favorable regarding the long-term outlook of the company.

"We reiterate our $44 target price (approximately 17.5x our 2016 EPS estimate of $2.50). A multiple of 17.5x is relatively in-line with the two year average of the out year multiple (17.0x). As visibility for a turnaround at the Urban Outfitters division becomes more evident, we believe the Street's 2016 EPS estimates will increase to be in-line with our above consensus estimate (we are at $2.50 vs. consensus at $2.28)."

Oppenheimer - Outperform, $44 price target

"Between '06, '11 and now '13/'14 fashion misses, it takes Urban Outfitters division five quarters to fix the business, with positive comp momentum continuing from holiday, driven by improvement in women's apparel; we believe store comp is still negative albeit expected positive for '15. At 11 percent, EBIT margins appear at bottom, with guidance for 100 bps in gross margin expansion (with 50 bps drag from DC transition) much better than feared.

"With margins potentially inflecting, MSD sq ft growth, 50 percent of business seeing better momentum and 20M/share buyback (16 percent market cap, $0.20 to EPS), we expect investors to be in chase mode on the name; it's seldom that all concepts work for a fashion retailer."

BMO Capital Markets - Market Perform, $32 price target

"We are encouraged by the progress at URBN, as the core Urban brand appears to be gradually finding its footing. Still, we believe the division largely remains a work in progress, with the core women's apparel business still in the early stages of a turn. While Anthropologie continues to perform well, we see limited upside to current margin levels. While we do see opportunity for gross margin to improve this year, the back-end-weighted nature of the outlook adds some risk, in our view.

"We continue to see Urban's focus on e-commerce investments (particularly mobile) as prudent, but expect this spending, along with costs to support category extensions, to prevent significant operating leverage in the absence of a major comp acceleration. Combined, these factors prevent us from becoming more constructive for the time being, given current valuation levels."

Jefferies - Hold, $38 price target

"The positive inflection in SSS at the Urban Outfitters brand marks an important turning point for the company and we believe margins will follow as momentum here continues. We also like the downside protection afforded by ongoing share buybacks.

"That said, we believe current valuation accurately reflects the company's top line recovery prospects and we await compelling signs of a margin inflection before becoming more positive."

Wunderlich - Buy, $49 price target

"We are raising our price target to $49 (from $42) on Urban Outfitters (URBN), tweaking our above-consensus FY15 EPS projection to $2.12, and rolling out FY17 EPS of $2.52 (up 19 percent YoY) after Urban Outfitters reported 4Q upside, driven by SG&A leverage and better-than-expected gross margins, and signaled the turn at Urban has begun to bear gross margin fruit.

"We believe the company is positioning themselves to drive upside from numerous levers in FY16, especially in 2H, and to drive material operating leverage even higher in FY17. As such, and with the Street still somewhat apathetic on the name, we strongly recommend purchase of URBN shares and believe top and bottom line upside potential firmly remains for FY16, especially in 2H."

Image credit: Ardfern, Wikimedia

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