3 Reasons Morgan Stanley Upgraded Urban Outfitters

Despite the 14 percent rally in Urban Outfitters, Inc. URBN shares on May 19, Morgan Stanley’s Kimberly C. Greenberger believes that the current stock valuation is reasonable, with upside potential of another 14 percent.

Greenberger upgraded the rating on the company from Equal-weight to Overweight, with a price target of $32.

2012-2013 Revisited

“URBN's 1Q16 results show key sales and margin levers continuing to move in the right direction, bucking the industry trends that have taken Department Store and select Specialty Retail shares down ~15-20 percent since April 1st,” the analyst mentioned.

Greenberger pointed out, however, that the same had occurred during 2Q12 and 2Q13, when Urban Outfitters proved that it was able to read consumer trends at Anthro and react accordingly, thereby driving the stock up 37 percent over time.

The analyst believes that the company can do this once again.

Firing On All Cylinders

In addition, Greenberger mentioned that Urban Outfitters was “firing on all cylinders” and that there was “scope for comps to accelerate as 2016 progresses.”

The analyst also noted that the 6 percent growth in the regular price comp in 1Q supports the intra-quarter channel checks, suggesting that the company’s multi-year product initiatives are bearing fruit.

“We think management adjusted new receipts to better sync with Spring product reads, which should help position late May/June/July and 2H16 assortments to align with customer preferences, driving comp upside,” Greenberger added.