Morgan Stanley: Mind The Gap
Morgan Stanley analyst Kimberly Greenberger said the eventual Gap-Old Navy separation details creates key questions about growth assumptions considering Old Navy’s challenging long-term growth targets of $10 billion in sales with 2000 stores.
Greenberger also said Athleta may become the next Bath & Body Works, a bright spot trapped inside a struggling Gap portfolio, and believes there are investors that want to own Athleta but not the rest of the Gap portfolio.
“Following Gap’s investor day today, we leave with a greater appreciation for the distinct pieces of the business and agree that spinning off Old Navy creates separate, transparent reporting metrics,” Greenberger wrote in a note.
The seperation allows investors who may have been deterred from buying Gap’s stock, due to a struggling Gap brand, an opportunity to invest in Old Navy post-separation, she added.
Morgan Stanley maintains an Underweight rating with a $15 price target.
Wells Fargo: Part Of The Whole
Wells Fargo analyst Ike Boruchow says a re-look at the sum of the parts thesis reveals a more favorable risk-reward for Gap.
Boruchow believes investors are very quick to give Gap a typical “struggling mall retailer multiple” but says Athleta’s business is material to Gap’s EBITDA, meaning the company’s multiple could be argued higher.
“With the Old Navy spin planned for early 2020, we don’t see material downside risk levels from where we stand today simply due to the embedded valuation assumptions,” Boruchow wrote in a note.
Wells Fargo maintains a Market Perform rating and raised its price target from $18 to $24.
Gap's stock traded higher by 1.1% to $19.39 per share at time of publication.
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