(By Balaseshan) BMO Capital Markets analyst John Morris downgraded the rating of Urban Outfitters Inc. (NASDAQ: URBN) to "Market Perform" from "Outperform" with $45 price target.
Morris said until now his rating was premised on building momentum at the Urban division while the turnaround at Anthropologie gained traction.
While the core Urban brand has recovered nicely (and he expects that momentum to continue), the analyst thought he would see clearer signs of traction at Anthropologie by this point. The division has indeed made improvement with respect to product and pricing for Spring, but overall remains a work in progress.
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Morris now believes the turnaround will be more moderately paced, especially against the backdrop of a mixed consumer this spring. At 40% of the business, more headway with Anthro is important to the pace of improvement and therefore the pace of upside on the stock.
With the analyst's thesis on margin recovery playing out, he doesn't see as many near-term catalysts to drive the stock significantly higher for the time being against the backdrop of a cloudy macro-consumer outlook.
Morris believes it makes sense for investors to consider taking profits into anticipated strength on favorable 4Q results. For longer-term investors, he believes URBN remains a compelling story in retail.
The brokerage lowered its 2013 EPS estimate to $2.00 from $2.10, while establishing its 2014 estimate of $2.30.
URBN is trading up 1.29% at $41.97 on Friday.