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Jefferies analyst sees hidden jewel in Athleta

The Associated Press

Jefferies analyst Randal Konik raised his price target on retailer Gap Inc. Tuesday, saying that the market has not recognized the potential of its Athleta brand.

THE OPINION: Athleta is just a small piece of Gap's business, which also includes its namesake, Banana Republic, Old Navy and Piperlime brands. But Konik thinks that this small chunk of the business has huge potential.

The analyst said he thinks the Athleta brand, which currently has about 35 stores, could run more than 100 stores in the next two years. That means it could be a more formidable competitor with Lululemon, which operates 186 stores in North America.

Konik said that Athleta offers appealing, high-quality clothing and accessories at lower prices than Lululemon and targets a broader range of activities than its yoga-centric competitor, making it more attractive to a wider base of consumers. Its ties to Gap also give Athleta an added competitive advantage for marketing power.

Athleta is the hidden jewel for Gap, the analyst said. He believes the market has not factored in any value from the brand into the price of Gap's shares. The San Francisco company's stock remains one of his top picks. Konik increased his price target to $56 from $51 and maintained a "Buy" rating on its shares.

THE STOCK: Gap's shares were nearly flat in early afternoon trading, slipping 5 cents to $36.80. Its shares are up about 19 percent in the year to date.