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Why KeyBanc Downgraded Urban Outfitters

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Why KeyBanc downgraded URBN

On July 10, KeyBanc Capital Markets downgraded apparel retailer Urban Outfitters (URBN) to “sector weight,” according to a report from Benzinga. The firm also downgraded Nordstrom (JWN). Urban Outfitters stock didn’t react much to the news. It closed at $45.82, a 0.04% rise. On a YTD basis, the stock was up 30.7%.

Urban Outfitters was earlier rated as “overweight,” but KeyBanc analyst Edward Yruma now believes that the rise of online subscription-based shopping services like Stitch Fix (SFIX) and the ever-growing clout of Amazon (AMZN) will require traditional retailers to keep investing into its digital sales platform. Moreover, Yruma added that many online services are now acting as “personal stylists” for consumers, thereby gaining an edge over traditional retailers.

In particular, for Urban Outfitters, Yruma stated that the company was likely to witness difficult year-over-year same-store sales in the latter half of the current fiscal year. Also, increases in gross margin can only drive the bottom-line performance up.

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A look at Urban Outfitters’ top-line numbers

Urban Outfitters’ digital sales rose in the double digits in the first quarter of fiscal 2019. On a YoY basis, the company’s overall sales grew 12.4% due to strength in its e-commerce business and its three brands: Free People, Anthropologie, and Urban Outfitters. In the second quarter, Urban Outfitters is expected to report sales growth of 12% to $977.9 million, while for fiscal 2019, sales are expected to be up 8.4% to $3.92 billion.

Rating synopsis

As of July 10, of the 22 analysts covering URBN stock, 59.0% recommended a “hold,” 36.0% recommended a “buy,” and 5.0% recommended a “sell.”

In the past 30 days, both Citigroup and Morgan Stanley raised their target prices for URBN. On July 9, Morgan Stanley increased its target price to $44 from $40. On June 13, Citigroup upped the target price on URBN stock to $48 from $41.

Currently, analysts’ 12-month average target price for the company is $47.28, which reflects ~3.2% upside based on its stock price on July 10.

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