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Urban Outfitters Quarterly Valuation June 2014 $URBN

URBN_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies with a Low Beta.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Urban Outfitters (URBN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Urban Outfitters, Inc. (Urban Outfitters) is a lifestyle specialty retail company, which operates under the Urban Outfitters, Anthropologie, Free People, Terrain and BHLDN brands. The Company also operates a wholesale segment under the Free People brand. In addition to its retail stores, it offers its products and markets its brands directly to the consumer through its e-commerce Websites, www.urbanoutfitters.com, www.anthropologie.com,www.freepeople.com, www.urbanoutfitters.co.uk,www.urbanoutfitters.de, www.urbanoutfitters.fr, www.anthropologie.eu, www.shopterrain.com and www.bhldn.com and also through its Urban Outfitters, Anthropologie and Free People catalogs. Its Urban Outfitters stores, Websites and catalogs offer a range of eclectic merchandise, including women’s and men’s fashion apparel, footwear and accessories and an eclectic mix of apartment wares and gifts.

URBN Chart

URBN data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $33.49
MG Value $32.75
MG Opinion Fairly Valued
Value Based on 3% Growth $25.04
Value Based on 0% Growth $14.68
Market Implied Growth Rate 5.45%
NCAV $3.18
PEmg 19.40
Current Ratio 3.00
PB Ratio 2.91

Balance Sheet – 1/31/2014

Current Assets $995,000,000
Current Liabilities $331,800,000
Total Debt $0
Total Assets $2,221,200,000
Intangible Assets $0
Total Liabilities $527,000,000
Outstanding Shares 147,310,000

Earnings Per Share

2015 (estimate) $1.90
2014 $1.89
2013 $1.62
2012 $1.19
2011 $1.60
2010 $1.28
2009 $1.17
2008 $0.94
2007 $0.69
2006 $0.77
2005 $0.54

Earnings Per Share – ModernGraham

2015 (estimate) $1.73
2014 $1.60
2013 $1.43
2012 $1.30
2011 $1.28
2010 $1.07

Conclusion:

Urban Outfitters qualifies for the Enterprising Investor but not the Defensive Investor, who is concerned with the lack of dividend payments and the high price-to-book ratio.  The Enterprising Investor’s only concern is the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Nordstrom Inc. (JWN) and ModernGraham’s valuation of Gap Inc. (GPS).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.28 in 2011 to an estimated $1.73 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 5.45% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value that falls within a margin of safety relative to the current price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Urban Outfitters (URBN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of Urban Outfitters (URBN)!

Disclaimer:  The author did not hold a position in Urban Outfitters (URBN) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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