Citi Upgrades Urban Outfitters To Hold, Raises PT to $38

Citi sees less near term risk for Urban Outfitters URBN and it's raising the 4Q10 estimate to $0.52, in-line with consensus. Inventory should move closer to the rate of sales to end the year and markdown rates, while they remain historically high, appear to have been relatively well managed to end the quarter. There's a dearth of growth companies in the sector and Citi thinks investors will start to look past a tough 1H11 to easing sales and margin compares in 2H11. Consensus is now looking for 17% EPS growth in 2011. Citi doesn't see that as unreasonable given low to mid-teens unit growth and prospects for share buybacks. A shift from skinny to wider leg pants and skirts carries risk to both the degree and pace of consumer acceptance. The last fashion shift to long over lean resulted in a comp decline, the biggest drop since 2000. A slow adoption rate could limit URBN's ability to improve markdown rates in the near term - and that's what keeps Citi from moving to an outright “buy” here. Citi has a Hold rating and $38 PT on URBN URBN closed Monday at $35.11