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Why Urban Outfitters, Inc. Is Poised to Bounce Back

By Brian D. Pacampara, CFA – Feb 10, 2014 at 11:03AM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Urban Outfitters (URBN) gained 2% this morning after Brean Capital upgraded the apparel retailer from hold to buy.

So what: Along with the upgrade, analyst Eric Beder planted a price target of $43 on the stock, representing about 19% worth of upside to Friday's close. While momentum traders might be turned off by the stock's slide over the past year, Beder thinks that Urban is becoming too cheap to pass up given its seemingly improving fundamentals.

Now what: According to Brean, Urban's risk/reward trade-off is pretty attractive at this point. "We believe, based on our pricing survey and store tours that the Urban Outfitters chain is slowly turning the corner, while both Anthropologie and Free People remain strong," noted Beder. "Our new price target of $43 translates to 17.5X our FY16 EPS projection of $2.47 (15.4X cash adjusted); we believe URBN, as one of the few visible growth stories in retailing, is well worth a premium multiple." When you couple that growth potential with Urban's industry-topping operating margins, it's easy to agree with Brean's bullishness. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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