Morgan Stanley Steps To The Sidelines On Urban Outfitters

Morgan Stanley has downgraded Urban Outfitters, Inc. URBN to Equal Weight from Overweight as risk/reward appears more balanced following 72 percent rally year-to-date.

“Key pieces of the URBN story look largely intact — UO comp momentum, GM recapture, inventory discipline, and tight expense control — but appear priced in at current levels,” analyst Kimberly Greenberger wrote in a note.

That said, the analyst noted that Urban Outfitters is navigating retail industry headwinds of apparel price deflation, online competition and margin pressures by expanding in to shoes, home and beauty. The company also increased its proprietary apparel penetration, and larger format stores/new concepts.

However, Greenberger expects 5 percent 2016–2019 sales CAGR, less than half the growth Urban Outfitters saw in 2011–2014, with EPS growing 9 percent versus 13 percent in 2011–2014.

The analyst has a price target of $39 (up from $36), with a bull case target of $50 and bear case scenario of $22.

Urban Outfitters will release its third quarter numbers on November 22. Greenberger projects EPS of $0.41 versus Street’s $0.44. The analyst models -0.1 percent comp (vs. Street +1.8 percent), and 3.7 percent total sales growth versus Street’s 5.3 percent.

At last check, shares of Urban Outfitters were down 0.89 percent to $38.77.