Urban Outfitters Inc. (URBN) Quarterly Valuation

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.  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 Inc. 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 = 4/7

  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 – FAIL
  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 $37.44
MG Value $35.93
MG Opinion Fairly Valued
Value Based on 3% Growth $22.89
Value Based on 0% Growth $13.42
Market Implied Growth Rate 7.61%
NCAV $3.09
PEmg 23.72
Current Ratio 3.00
PB Ratio 3.45

Balance Sheet – 10/31/2013

Current Assets $976,800,000
Current Liabilities $325,900,000
Total Debt $0
Total Assets $2,118,300,000
Intangible Assets $0
Total Liabilities $522,000,000
Outstanding Shares 147,280,000

Earnings Per Share

2014 (estimate) $1.83
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
2004 $0.30

Earnings Per Share – ModernGraham 

2014 (estimate) $1.58
2013 $1.43
2012 $1.30
2011 $1.28
2010 $1.07
2009 $0.92


Urban Outfitters Inc. appears suitable for the Enterprising Investor but not the Defensive Investor, due to the lack of dividend payments and high PEmg and PB ratios.  The Enterprising Investor is not quite as strict as the Defensive Investor, due to the Enterprising Investor’s willingness to undergo extensive analysis, and the only initial drawback of the company for the Enterprising Investor is the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable conducting further research into this company, including a review into other opportunities such as by reading ModernGraham’s valuation of The Gap Inc. (GPS) and a list of 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be fairly valued at the present time.  The company has grown its EPSmg (normalized earnings) from $1.07 in 2010 to an estimated $1.58 for 2014, a level of growth that supports the market’s implied estimate of earnings growth of 7.61%.  The ModernGraham valuation model accordingly returns an estimate of intrinsic value that falls within a safety margin in relation 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 Inc. (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.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

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

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

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