Is Urban Outfitters Stock Too Expensive?

In a report published Friday, Maxim Group analysts maintained a Hold rating on

, while raising the price target from $26 to $32. The EPS estimate for 2016 has been raised from $1.83 to $2.01. The analysts are still skeptical about Urban Outfitters being able to meet its gross margin goals. They assume that the company would repurchase $500 million worth of shares, which at the current price, translates to a buyback of 11.2 million shares, being accretive by $0.18. There may be only small improvements in operating margin and net income. "We believe that the lack of organic earnings growth and the overall state of specialty retail concepts warrant a 6.0x EV/EBITDA multiple. The risk, in our opinion, comes from the market pricing a significant recovery (that we have our doubts will occur) into the current share price," the report said. Investors seem to be expecting the company to return to near-peak operating margins by 2018. This implies "a rather remarkable recovery from the 11% operating margin in the recently completed FY15," the analysts noted. A significant gross margin recovery is unlikely given the "ongoing promotional environment." The share price has increased recently, with investors looking at the QTD comp and perceived easy compares. "We expect mid-single digit comps early in the year and low single digits in the back half. Investors seemed encouraged when management indicated that Q1 QTD comps were in the mid-single digits. However, compares become progressively more difficult," the analysts wrote.