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Why One Analyst Upgraded Urban Outfitters

"Out with the old CEO and in with the new" has prompted one analyst to say out with the “sell” rating and in with the “neutral” rating for Urban Outfitters.

After the clothing retailer announced on Tuesday that its Chief Executive Glen Senk had resigned and and co-founder and Chairman Richard Hayne would replace him, Betty Chen, a retail analyst at Wedbush Securities, upgraded the stock to neutral and raised its 12-month price target to $25 from $22.

“We believe that Richard had been very involved with the business on a day-to-day basis already,” Chen said.

“He’s also very well-loved and respected by the internal team at the company, and, therefore, we believe that perhaps some new ideas could also accelerate the pace of the turnaround at the company.”

Counterpoint:

Chen’s upgrade follows a downgrade by Jeff Black, a Citigroup analyst, of the company’s stock to “sell” from “buy,” due to a possible distraction caused by organizational issues surrounding Senk's departure.

“We had believed prior to this week that investor expectations for a turn in the first half of the year had been a little too optimistic, but after the sell-off yesterday where the stock dipped 17 percent, we believe that the current valuation is much more compelling,” Chen said. “It also reset any sort of outlook and pushed the timing to the second half, and we do believe that’s a much more realistic outcome for the company.”

Chen added that she believes the company will start to signal that clearance inventory is becoming healthier, and that early spring goods are beginning to show “signs of life” from consumers.

If the trends do improve in the stores, she said there could be potential upside to the company’s “neutral rating.”

Additional News: Revolving Door of Retail CEOs

Additional Views: How to Play Retail

Disclosures:

Wedbush Securities does and seeks to do business with companies covered in its research reports.

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