On Wednesday, Citi upgraded shares of Urban Outfitters, Inc. (NASDAQ:URBN) from Neutral to Buy, setting a new price target at $59, a significant increase from the previous $42 target. The upgrade follows Urban Outfitters' third-quarter results, which the analyst described as demonstrating strong execution across the company’s portfolio.
Urban Outfitters has, for the first time in years, shown signs of a brand recovery, according to the analyst's assessment. Management at Urban Outfitters is guiding towards a sequential improvement in fourth-quarter comparable sales, and they anticipate a margin recovery that is expected to continue into Fiscal Year 2025. This recovery is projected to contribute approximately $1.00 in incremental earnings per share if the company can achieve a mid-single-digit EBIT margin over time.
The analyst also noted that the company's other brands, Anthropologie and Free People, maintain solid positions, with Free People Movement and Nuuly contributing to outsized growth. This performance has bolstered confidence in the company's ability to achieve mid-single-digit sales growth in Fiscal Year 2025.
Additionally, the analyst highlighted potential margin tailwinds from Urban Outfitters' margin recovery, a building cash reserve estimated to exceed $900 million in Fiscal Year 2024—which would represent about 25% of the company’s market capitalization—and the likelihood of increased share repurchases. These factors have led to a forecast of mid-teens earnings per share growth in Fiscal Year 2025.
The current valuation of Urban Outfitters shares, trading at a Fiscal Year 2025 estimated price-to-earnings multiple of just 9.5 times and an EBITDA multiple of 4.4 times, led the analyst to conclude that the risk-reward profile for the stock is very favorable. This positive outlook is based on the recent performance and expected future growth of the company.
In other recent news, Urban Outfitters Inc. (NASDAQ:URBN) has reported a strong third quarter for the fiscal year 2025. Earnings and revenue results indicate a robust performance, with total sales climbing 6% to $1.4 billion and net income rising by 24% to $103 million. Gross profit also increased by 9% to $497 million, improving the gross profit rate to 36.5%.
The company's rental service, Nuuly, saw a 48% revenue increase and a 50% growth in its subscriber base. However, the Urban Outfitters brand experienced a 9% decline in its retail segment.
On the analyst front, URBN is projecting similar total sales growth for Q4 as seen in Q3, and expects continued improvements in gross margin. The company also plans to open approximately 58 new stores, while closing 31 in fiscal 2025.
InvestingPro Insights
Recent data from InvestingPro aligns with Citi's bullish outlook on Urban Outfitters (NASDAQ:URBN). The company's P/E ratio of 11.87 and PEG ratio of 0.34 suggest that URBN is trading at a low valuation relative to its near-term earnings growth potential, supporting Citi's view of a favorable risk-reward profile.
InvestingPro Tips highlight that URBN has shown significant returns over the last week and month, with a 14.13% price increase in the past month alone. This recent momentum correlates with the analyst's observation of brand recovery and improved execution across the company's portfolio.
Furthermore, URBN's financial health appears solid, with InvestingPro data showing that cash flows can sufficiently cover interest payments and liquid assets exceed short-term obligations. This strong financial position supports management's guidance for margin recovery and potential for increased share repurchases.
InvestingPro offers 11 additional tips for URBN, providing investors with a comprehensive analysis of the company's financial health and market position. To access these insights and more, check out the full InvestingPro product.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.