UPDATE: FBR Capital Markets Initiates Coverage on Urban Outfitters on Healthy Margins, Strong Growth

In a report published Wednesday, FBR Capital Markets analyst Susan Anderson initiated coverage on Urban Outfitters (NASDAQ: URBN) with an Outperform rating and $43.00 price target.

In the report, FBR Capital Markets noted, “We are initiating coverage of Urban Outfitters, Inc. (URBN) with an Outperform rating and a 12-month price target of $43 per share. Although URBN's business is only semi-exposed to the teen segment through its Urban Outfitters (UO) operations, it has not been immune to recent retail pressures. URBN noted in its 10-Q filed on September 9, 2013, that SSS were in the +MSD for 3Q13 to date, versus the consensus at +MSD/+HSD. Since then, the stock has pulled back 15%. Although we expect continued weakness in the UO segment in 3Q13 and 4Q13, we believe the pullback in the shares provides an attractive entry point for a high-quality name. We think URBN is well positioned to navigate an environment in which consumers crave fashion and differentiated products. URBN's EBIT margin was 13% in 2012, one of the highest in specialty retail, and we believe the EBIT margin can expand back toward its peak of 18%. URBN sits on the horizon of The Anderson Frontier with its strong omni-channel/supply chain capabilities and growth through Free People and the international segment. While there may be some near-term pressure as URBN cycles through tough comparisons in 2H13 and weakness at UO, URBN has a unique combination of growth and margin potential, and we would be buyers on weakness. Our 2014 EPS estimate of $2.30 is 16x the current price, which is below expected EPS growth of almost 20%, and if there is upside to EPS, then URBN is significantly undervalued, in our view.”

Urban Outfitters closed on Tuesday at $36.51.