Ahead of the Bell: Urban Outfitters downgraded

Thomas Weisel Partners analyst Liz Dunn said in a client note that sales seem to have dropped off "sharply" across the sector and at Urban Outfitters specifically as consumers pull back spending in reaction to economic turmoil.

"Back-half estimates were already suggesting a worsening two-year trend in many cases," Dunn wrote. "However, what we are hearing is that sales broadly are below what originally appeared to be conservative estimates."

Dunn expects sales to pick up once Congress approves the $700 billion bailout of the financial sector. A vote is expected Monday.

"However, the unease about housing values and the safety of investments (including bank deposits and money markets) that arose from the financial crisis will likely linger," she added.

She downgraded the stock to "Market Weight" from "Overweight," partly due to the stock's current value, which is approaching her $40 price target.

Urban Outfitters shares have risen 28 percent since the beginning of the year and closed at $34.94 Friday.

"Our downgrade is mostly a matter of valuation," Dunn wrote. "It appears that even a modest slowdown could have an outsized impact on the share price given where other stocks in the group are trading."