Baird Downgrades Urban Outfitters On Valuation, Not Execution

Urban Outfitters, Inc. URBN's fashion sense might be back, but its premium valuation rules out a bullish thesis, according to Baird.

The Analyst

Baird Equity Research analyst Mark Altschwager downgraded Urban Outfitters from Buy to Neutral and maintained a $53 price target. 

The Thesis

After seeing shares run up over 190 percent from their June 2017 lows, Altschwager said he's stepping to the sidelines on Urban Outfitters — but not because of a lack of execution. (See the analyst's track record here.) 

The analyst said he remains positive on Urban Outfitter’s strong fundamentals and continues to believe in the company’s improved fashion execution, momentum in the apparel category and opportunities to drive further earnings growth.

Even with the potential for upside to second-quarter earnings, and management commentary stating Urban Outfitters could be in the "early stages" of a fashion cycle that could last "a long period of time," Altschwager said comparisons get increasingly more difficult from here, as he expects comps to decelerate in the second half of 2019.

“Historically, we have found valuation expansion and stock outperformance to be difficult during these periods. For context, while the broader apparel retail sector is enjoying better times, URBN’s incredible recent comp and earnings performance is also a function of especially weak results in [the first half of 2018],” the analyst said. 

Still, Altschwager leaves his call with some outs: he named Urban Outfitters one of the best assets in the specialty retail space and said Baird "could be stepping to the sidelines too early.”
Price Action

Urban Outfitters shares were up 1.65 percent at $48.18 at the time of publication Tuesday. 

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