Critical Analysis: American Eagle Outfitters (AEO) and Urban Outfitters (URBN)

American Eagle Outfitters (NYSE: AEO) and Urban Outfitters (NASDAQ:URBN) are both mid-cap retail/wholesale companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, earnings, dividends, profitability, risk, institutional ownership and analyst recommendations.

Risk & Volatility

American Eagle Outfitters has a beta of 1.19, suggesting that its share price is 19% more volatile than the S&P 500. Comparatively, Urban Outfitters has a beta of 0.73, suggesting that its share price is 27% less volatile than the S&P 500.

Profitability

This table compares American Eagle Outfitters and Urban Outfitters’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Eagle Outfitters 4.85% 18.25% 12.17%
Urban Outfitters 4.81% 13.34% 9.07%

Earnings and Valuation

This table compares American Eagle Outfitters and Urban Outfitters’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
American Eagle Outfitters $3.61 billion 0.80 $212.44 million $0.97 16.80
Urban Outfitters $3.55 billion 0.98 $218.12 million $1.50 21.42

Urban Outfitters has lower revenue, but higher earnings than American Eagle Outfitters. American Eagle Outfitters is trading at a lower price-to-earnings ratio than Urban Outfitters, indicating that it is currently the more affordable of the two stocks.

Dividends

American Eagle Outfitters pays an annual dividend of $0.50 per share and has a dividend yield of 3.1%. Urban Outfitters does not pay a dividend. American Eagle Outfitters pays out 51.5% of its earnings in the form of a dividend.

Institutional and Insider Ownership

83.2% of American Eagle Outfitters shares are owned by institutional investors. Comparatively, 86.5% of Urban Outfitters shares are owned by institutional investors. 5.9% of American Eagle Outfitters shares are owned by insiders. Comparatively, 26.3% of Urban Outfitters shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Analyst Ratings

This is a breakdown of current ratings and price targets for American Eagle Outfitters and Urban Outfitters, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Eagle Outfitters 2 7 9 0 2.39
Urban Outfitters 3 18 9 0 2.20

American Eagle Outfitters presently has a consensus target price of $14.47, indicating a potential downside of 11.21%. Urban Outfitters has a consensus target price of $23.78, indicating a potential downside of 26.00%. Given American Eagle Outfitters’ stronger consensus rating and higher probable upside, analysts clearly believe American Eagle Outfitters is more favorable than Urban Outfitters.

Summary

American Eagle Outfitters beats Urban Outfitters on 8 of the 15 factors compared between the two stocks.

About American Eagle Outfitters

American Eagle Outfitters, Inc. (AEO Inc.) is a multi-brand specialty retailer. The Company offers a range of apparel and accessories for men and women under the American Eagle Outfitters Brand (AEO Brand), and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. As of January 28, 2017, the Company operated over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally. Its company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom. Its other brands include Tailgate and Todd Snyder New York. Tailgate is an apparel brand with a college town store concept. Todd Snyder New York is a menswear brand. As of January 28, 2017, the AEO brand operated 943 stores and online at www.ae.com.

About Urban Outfitters

Urban Outfitters, Inc. is a lifestyle specialty retail company. The Company operates through two segments: Retail and Wholesale. The Company’s Retail segment consists of its Urban Outfitters, Anthropologie, Free People, Terrain and Bhldn brands, whose merchandise is sold to its customers through retail stores, Websites, mobile applications, catalogs and customer contact centers. The Retail segment also includes Vetri Family, which operates restaurants under the names Amis, Alla Spina, Lo Spiedo, Pizzeria Vetri and Osteria. Its Wholesale segment consists of the Free People wholesale division that primarily designs, develops and markets young women’s contemporary casual apparel and shoes through individual and chain specialty stores and department stores. The Company’s Wholesale segment includes Free People-branded tops, bottoms, sweaters, dresses, intimates, shoes and activewear, which are sold through department and specialty stores around the world, and its Free People stores.

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