Investing.com -- Jefferies upgraded Urban Outfitters (NASDAQ:URBN) to Hold from Underperform, citing strong performance across most of its brands and a clearer path to margin recovery, though adding that the stock’s valuation now reflects much of the upside.
The firm raised its price target to $70 ahead of an investor event next week, noting that four of the company’s five key brands, Anthropologie, Free People, FP Movement, and Nuuly, are delivering solid growth.
Urban Outfitters’ namesake brand, while still facing challenges in North America, showed signs of improvement.
“Despite UO’s NA weakness, we believe mgmt has done an impressive job navigating macro headwinds, optimizing inventory, and enhancing URBN’s digital segment,” Jefferies analysts wrote.
They said recent management changes and digital initiatives are helping to stabilize the brand.
Jefferies projects Urban Outfitters’ enterprise-wide revenue to grow at an annual rate of 15.6% through fiscal 2027, in line with consensus.
Operating margins are expected to rise from 8.6% last year to 10% by FY’27, approaching the company’s long-term average of 11.5%.
While the firm sees opportunity for further gains if Urban Outfitters North America returns to sustained positive comps, it flagged that the stock is already trading above historical valuation averages, roughly 13x FY’26 earnings vs. a five-year average of 11x.
Jefferies said the company’s financial position is solid, with no debt and $841 million in cash and marketable securities. Inventories rose 15% last quarter, but management appears to be managing them well, the analysts noted.