Investing.com -- Jefferies has upgraded Urban Outfitters (NASDAQ:URBN) to a “hold” rating, moving it from “underperform,” in a note dated Friday.
The upgrade comes with a new price target of $70, an increase from the previous target of $50. The current stock price for URBN is $69.71, as of the prior trading day’s closing price.
The revision in rating follows Urban Outfitters’ healthy first-quarter results and precedes an upcoming investor event.
Analysts at Jefferies believe the risk/reward balance for URBN is now more balanced due to a combination of improved financial figures and an elevated valuation.
While Urban Outfitters North America (UO NA) has shown mixed trends and remained negative in the first quarter of fiscal year 2026, Jefferies sees a relatively clear line of sight to its recovery.
Management has been recognized for navigating macro headwinds, optimizing inventory, and enhancing the digital segment, including the hiring of Shea Jensen as the head of Urban Outfitters, North America, in February 2024.
UO’s regular price selling has been positive for two consecutive quarters and accelerated from the fourth quarter.
If UO NA turns positive, it could provide an approximate 100 basis point tailwind to fiscal year 2027 sales.
Currently, Anthropologie, Free People, FP Movement, and Nuuly are performing well, driving positive top-line growth with healthy trajectories.
Nuuly is also expected to continue being EBIT accretive. Overall, Jefferies expects URBN to continue to have positive low-single-digit comparable sales growth.
Jefferies also projects that Urban Outfitters’ EBIT margins could reach 10% by fiscal year 2027, up from about 8.6% last fiscal year.
The company’s 20-year historical operating margin average is 11.5%, which is about 290 basis points higher than its fiscal year 2025 results.
Urban Outfitters’ balance sheet is considered healthy, with no debt and cash and marketable securities totaling $841 million.
Although inventories were slightly elevated last quarter (up 15% versus sales up 11%), Jefferies believes the company is in a good position.
Risks that remain include potential slowing if all brands are on solid growth trajectories, although this has not been observed yet, and the possibility that shares could be peaking, leading to the more balanced risk/reward outlook