Can The Gap Pick Up Market Share Up For Grabs By Department Store Closings?
Citing a washed out valuation, Oppenheimer equity research analyst Anna Andreeva has upgraded Gap Inc (NYSE: GPS) to Outperform and set a $28 price target.
Old Navy Driving Growth Story
As Old Navy continues to perform extremely well and with improved gross margins across all Gap brands, Andreeva believes earnings estimates for the remainder of the year are too conservative.
With J C Penney Company Inc (NYSE: JCP), Macy’s Inc (NYSE: M) and Sears Holding Corp (NASDAQ: SHLD) closing 215 stores combined, this could create an opportunity for over $350 in women’s apparel sales for Gaps, according to Andreeva. Additionally, the report states the closing of 13 mall-based retailers has eliminated approximately 500 million in specialty women's apparel. If Gap is able to capitalize on just 5–10 percent of the 500 million, this would add 50–100 basis points to their comps valuation.
Gap is making strides with their production speeds. “Gap is catching up with data-driven responsive demand (testing, hindsighting season prior to production); with divisional margins ~600 bps below peaks, profitability should improve even if comps stay negative,” Andreeva said.
The report also highlighted that Gap is basically getting Banana/Athleta sales for free. Athleta has posted HSD+ sales growth over the last four quarters, which makes it a premium valuation and helps drive the $28 price target.
Overall, Andreeva believes the stock is not receiving enough love as Gap was trading at $22.61, at the time of publication.
Related Links
For The Gap, Is Old Navy Success Enough To Keep The Ship Afloat
The Gap Seeks To Stave Off Declining Mall Traffic With Digital Marketing Drive
Latest Ratings for GSE
Nov 2013 | William Blair | Downgrades | Outperform | Market Perform |
Nov 2013 | Cowen & Co. | Downgrades | Outperform | Market Perform |
Aug 2013 | Oppenheimer | Downgrades | Outperform | Perform |
View More Analyst Ratings for GSE
View the Latest Analyst Ratings
See more from Benzinga
Outfront Media Shares Have Taken A Beating, But Is It Time To Buy?
Lululemon And The Question Of How Much Faith Can Be Put Into Guidance
Is Five Below 1 Of The Only Attractive Risk/Rewards Left In Retail?
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
