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Earnings Miss: The Gap, Inc. Missed EPS By 27% And Analysts Are Revising Their Forecasts

Simply Wall St

The Gap, Inc. (NYSE:GPS) shares fell 4.5% to US$16.94 in the week since its latest quarterly results. It looks like a pretty bad result, all things considered. Although revenues of US$4.0b were in line with analyst predictions, earnings fell badly short, missing estimates by 27% to hit US$0.37 per share. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we've gathered the latest forecasts to see what analysts are expecting for next year.

View our latest analysis for Gap

NYSE:GPS Past and Future Earnings, November 23rd 2019

Taking into account the latest results, Gap's 22 analysts currently expect revenues in 2021 to be US$16.2b, approximately in line with the last 12 months. Earnings per share are expected to descend 14% to US$1.85 in the same period. Before this earnings report, analysts had been forecasting revenues of US$16.2b and earnings per share (EPS) of US$1.86 in 2021. So it's pretty clear that, although analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

Analysts reconfirmed their price target of US$16.95, showing that the business is executing well and in line with expectations. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Gap analyst has a price target of US$27.00 per share, while the most pessimistic values it at US$11.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.

Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.7% a significant reduction from annual growth of 0.5% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 5.9% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect Gap to grow slower than the wider market.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. The consensus price target held steady at US$16.95, with the latest estimates not enough to have an impact on analysts' estimated valuations.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Gap going out to 2022, and you can see them free on our platform here..

It might also be worth considering whether Gap's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.