On Wednesday, CFRA raised its rating on shares of Urban Outfitters, Inc. (NASDAQ: NASDAQ:URBN), changing its recommendation from Hold to Buy. Accompanying this upgrade, the firm also increased the price target for the company's stock from $36.00 to $54.00.
The upgrade was influenced by the strong performance of Urban Outfitters' brands, particularly Anthropologie and Free People. The analyst cited the strength of these brands as a key reason for the improved outlook, expecting the company to trade at a higher price-to-earnings (P/E) multiple than its five-year average. The new price target is based on a P/E multiple of 15.0 times the estimated earnings per share (EPS) for the fiscal year ending in January 2025 (FY 25).
Urban Outfitters recently reported earnings for the first quarter that exceeded consensus estimates. The company posted a normalized EPS of $0.69 compared to $0.56 in the same quarter of the previous year, surpassing estimates by $0.16. Total revenues reached $1.20 billion, also beating estimates by $22 million. A breakdown of the quarterly revenues by brand showed an 11% year-over-year increase for Anthropologie, a 16% increase for Free People, and a notable 51% increase for Nuuly, the company's subscription clothing rental segment. However, revenues for the Urban Outfitters brand itself declined by 12%.
The company also saw an improvement in its adjusted gross margin, which expanded by 106 basis points year-over-year to 34.4%. This increase was attributed to higher merchandise markups at Free People and Anthropologie, although it was partially offset by markdowns at the Urban Outfitters brand.
The analyst highlighted Urban Outfitters' solid financial position, pointing out that the company continues to operate with a debt-free balance sheet and has shown effective inventory management. With these positive indicators in mind, CFRA raised its EPS estimates for FY 25 to $3.60 and for FY 26 to $3.75, increases of $0.60 and $0.65 respectively. The firm believes that Urban Outfitters merits a higher market valuation, reflected in the raised stock rating and price target.
InvestingPro Insights
Following CFRA's upgrade of Urban Outfitters (NASDAQ: URBN) to a Buy rating, the InvestingPro platform provides additional insights that could be valuable for investors considering the stock. Urban Outfitters is trading at a forward P/E ratio of 12.79, which is appealing when aligned with the company’s near-term earnings growth potential. This is supported by the company's revenue growth, which in the last twelve months as of Q4 2024, was reported at 7.47%. Additionally, the company's stock has demonstrated significant price appreciation with a 52.81% return over the past year, indicating strong market confidence.
InvestingPro Tips highlight that Urban Outfitters' stock price movements are quite volatile, which may be an important consideration for investors looking for stable returns. Despite this, the company's cash flows are robust, with the ability to sufficiently cover interest payments, and Urban Outfitters operates with a moderate level of debt, suggesting a balanced approach to leveraging.
For those interested in further analysis and additional InvestingPro Tips, Urban Outfitters has more insights available on the platform. With the use of the promo code PRONEWS24, investors can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 9 InvestingPro Tips for Urban Outfitters that cover various aspects of the company's financial health and market performance.
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