Urban Outfitters Inc. (URBN, Financial) is a leading lifestyle specialty retail company that operates Urban Outfitters, Anthropologie, Free People, Terrain and BHLDN brands.
Price Target
Most analysts have a bullish opinion on the company: 15 Hold Rating(s) and 18 Buy Rating(s). When looking at the consensus price target, it stands at $41.70 according to MarketBeat, giving an interesting 21.50% upside potential. Further, Yahoo! (YHOO, Financial) Finance consensus price target is $40.59, an upside potential of 18.3%. Moreover, Jefferies recently upgraded the rating on the company to “Buy” from Hold, as well as increased the price target to $50 from $36, which represents 40% upside potential.
The obvious question I’m sure you want to know is - what is the future stock price movement? Although, I cannot predict exactly this number, I am confident that Urban will succeed in doing so.
Hedge Funds Holdings
I always like to see which hedge funds have long positions in the stock. Ken Griffin´s Citadel Investment Group held 3.32 million shares at the end of the first quarter. The value of the stake amounted to $151.7 million. The stock gained about 30% in that period, while the guru has increased the stake by 3600%. Other prominent investor in the stock is Ray Dalio (Trades, Portfolio), which upped his stake by 541% to 181,748 shares, valued at $8.3 million, held as of the end of the first quarter of 2015. Also, Caxton Associates (Trades, Portfolio) initiated a new position on the stock with 110,000 shares.
Plans to Expand
Analyzing the geographic composition of revenues, most of them are generated in the U.S. but the company focuses on Asia in order to expand in international markets. In fiscal 2013, the company began wholesale distribution of Free People products in Japan, while launching a Japanese ecommerce website for FP in the following year.
Looking at retail expansion, Urban plans 31 new stores in fiscal 2016, composed of four UO, 13 Anthro, and 14 FP.
Undervalued Shares
The company also has been actively managing its capital returning via share repurchases. Following last year share repurchase program of 10 million shares, in February the Board of Directors has authorized the repurchase of 20 million common shares. This is indicative that management believes the shares are undervalued.
Relative Valuation and Price Performance
In terms of valuation, the company sells at a trailing P/E of 18.3x, trading at a discount compared to the industry mean.
| Ticker | Company Name | P/E |
| URBN | Urban Outfitters | 20.29 |
| FL | Foot Locker | 18.63 |
| TJX | TJX Companies | 21.35 |
| ANF | Abercrombie & Fitch | 146.4 |
| ASNA | Ascena Retail Group | 20.85 |
| GPS | Gap | 12.76 |
| LB | L Brands | 21.99 |
| Ă‚ | Industry Median | 22.0 |
This ratio indicates that the stock is relatively undervalued when compared to TJX Companies (TJX, Financial), Ascena Retail Group Inc. (ASNA, Financial), Abercrombie & Fitch Co (ANF, Financial), and L Brands Inc. (LB, Financial). It seems to be an attractive investment relative to its peers [except for Foot Locker (FL, Financial) and Gap Inc. (GPS, Financial)].
The lifestyle specialty retailer came out with its first quarter results. Earnings per share (EPS) declined by 3.8% in the quarter compared to the same quarter a year ago. It posted earnings of $0.25 a share versus $0.26 from a year-ago. Although Urban has a declining pattern of EPS over the past year I think this trend will reverse.
In mid-October the stock hit a 52-week low of $29.25 when Mr. Market was warned about the declining comparable store sales and weakness in gross margins. In that opportunity we recommend buying this stock which would have generated about 16% of return.
Final Comment
Urban has a significant domestic presence, but it started to focus on international markets, getting a more diversified revenue mix. Further, its stock buyback program is a good signal while it wins back investors’ confidence in the stock.
The firm has a solid financial position and a good stock price performance, so this time I will continue recommend investors to consider adding the stock for their long-term portfolios.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
