Are Urban Outfitters-Anthropologie 'Overblown'?

In a report published Friday, BB&T Capital Markets analyst Paul S. Alexander upgraded the rating on Urban Outfitters, Inc. URBN from Hold to Buy, with a price target of $42, following the recent pullback of the stock on concerns surrounding a slowdown at Anthropologie.

Urban Outfitters' share price has tumbled 14 percent since last month, versus a 0.5 percent decline in the S&P 500. Analyst Paul S. Alexander believes that this offers "a good buying opportunity."

Anthropologie's sales decelerated towards the end of 1Q. However, the BB&T Capital Markets report enumerated four reasons to "maintain confidence in the overall direction of the brand:"

• There has been a marginal improvement in comps recently
• May was Urban Outfitters' strongest month of 2Q last year. Therefore, "further acceleration is possible as the company laps weaker months in June and July"
• Anthropologie's miss was driven mostly by dresses, a category that contributes a smaller part of the business in the back half of the year
• Anthropologie's management and creative teams appear to be making "the correct adjustments to the assortment to drive better execution in 2H."

Alexander commented that the recent deceleration at Anthropologie may not be a brand-equity issue, and believes that it remains "a compelling brand that enjoys strong customer loyalty."

Expressing optimism regarding the company’s brands and long term growth prospects, Alexander added that the recent increase in share buybacks could "provide upside to current estimates."