Investing.com -- Shares of Urban Outfitters (NASDAQ:URBN) jumped 14% in pre-market trading on Wednesday, buoyed by a revised outlook from Citi Research, which upgraded the company’s stock to a "buy."
The upgrade reflects optimism about the retailer’s financial trajectory, particularly following the release of its third-quarter results.
Analysts at Citi flagged several encouraging trends in Urban Outfitters’ performance, particularly signs of a recovery in its flagship brand.
The company’s management guided a sequential improvement in comparable sales and margins for the fourth quarter, which are expected to sustain momentum into fiscal year 2025.
Urban Outfitters’ focus on core product categories and a stronger alignment with its target demographic are seen as pivotal factors driving the turnaround.
In addition to improvements in the Urban Outfitters brand, the Anthropologie and Free People lines demonstrated consistent strength.
In addition, Citi flagged robust year-over-year growth in emerging segments like Nuuly and Free People Movement.
The financial outlook appears promising, with expectations for mid-single-digit sales growth in the coming fiscal year.
Urban Outfitters' cash position, projected to exceed $900 million by year-end, adds to its appeal.
This financial strength positions the company to increase shareholder returns, potentially through expanded share repurchase programs. Analysts at Citi expect this cash utilization could bolster earnings per share.
Urban Outfitters' valuation also contributed to the upgrade, with shares trading at what Citi considers a compelling multiple relative to peers.
With the stock now expected to climb toward a target price of $59, representing an 47% potential return, the investment case has gained momentum.