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Urban Outfitters Valuation Overly Optimistic?

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Urban Outfitters Valuation Overly Optimistic?

Analysts at Deutsche Bank turned bearish on Urban Outfitters, Inc. (NASDAQ: URBN) after the stock's 40-percent gain implies shares are now "stretched more than their skinny jeans." The firm's Tiffany Kanaga downgrades Urban Outfitters' stock rating from Hold to Sell with an unchanged $19 price target (see Kanaga's track record here).

The fashion retailer's stock has notably outperformed the broader retail index and the S&P 500 index since early August, which helped boost the stock's multiple 3.5 turns versus the Street's fiscal 2018 earnings per share estimate, Kanaga commented in her downgrade note. As such, the stock's multiple is sitting above its three-year average and "sharply defy the multi-year contraction trend."

Moreover, the fashion retailer's bull run has been driven by "optimism" that the company's gross profit margins and comps will remain strong, Kanaga continued. But heading into the release of September's same-store sales metrics and third quarter results, it is likely that the stock's multiple will contract back toward the analyst's 12x target as opposed to today's approximate 15.5x multiple on projected fiscal 2018 earnings per share.

Bottom line, bulls expectations are overblown especially when factoring in expectations for an unseasonable fall weather, disruption from the multiple hurricanes, worsening mall traffic trends, "choppiness" in fashion at the company's core Urban Outfitters brand and Anthropologie.

At time of publication, shares of Urban Outfitters were down 4.96 percent at $22.80.

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Image Credit: By BrokenSphere - Own work, CC BY 3.0, via Wikimedia Commons

Latest Ratings for URBN

DateFirmActionFromTo
Nov 2019Initiates Coverage OnEqual-Weight
Nov 2019MaintainsNeutral
Sep 2019UpgradesMarket PerformOutperform

View More Analyst Ratings for URBN
View the Latest Analyst Ratings

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