On Tuesday, Argus Research analyst upgraded shares of Gap Inc. (NYSE:GAP) from Hold to Buy, setting a price target of $27.00. The upgrade reflects the analyst's confidence in the company's ongoing turnaround efforts. Gap, a specialty retailer known for its Gap, Banana Republic, Old Navy, and Athleta brands, has seen its shares begin to climb after underperforming the market for the last five years.
According to InvestingPro data, the stock has delivered a 27% return over the past year, despite its historically volatile price movements. The company maintains a "GREAT" overall financial health score of 3.09 out of 5.
According to Dooley, Gap's shares are currently trading at an attractive valuation, with a low price-to-earnings (P/E) ratio of 11 times forecast earnings. InvestingPro data confirms this valuation, showing a current P/E of 10.76 and revealing that Gap has maintained dividend payments for 50 consecutive years, with a current yield of 2.56%.
The analyst's decision comes in the wake of Gap's recent achievements, which include surpassing consensus estimates, gaining market share across its brands, and increasing net sales for the fourth consecutive quarter. The company's strong liquidity position is evidenced by a healthy current ratio of 1.54.
Gap's third-quarter performance demonstrated its highest operating margin in seven years, a sign that the company's strategic initiatives are bearing fruit. The company achieved a robust gross profit margin of 49.6% in the last twelve months, while generating $1.1 billion in free cash flow.
Management has also provided guidance indicating an expectation for higher earnings in fiscal year 2025 and continued margin improvement. Dooley credits the management team with successfully revitalizing the brands and anticipates earnings growth in the coming quarters.
The analyst's positive outlook on Gap is bolstered by the company's consistent pattern of growth and margin expansion. With a 12-month price target of $27, the upgrade to a Buy rating suggests that Argus Research sees significant potential for Gap's stock in the near future.
The broader analyst community maintains targets ranging from $23.30 to $35.00, with InvestingPro analysis indicating the stock is currently fairly valued. Investors can access 12 additional exclusive ProTips and comprehensive valuation metrics through InvestingPro's detailed research report.
In other recent news, Gap Inc. has been experiencing a positive trajectory in its financial performance, with multiple analyst firms revising their price targets. Baird raised its price target amid sales momentum and operational efficiency, while Bernstein noted a positive start to the fourth quarter for U.S. apparel retailers, including Gap. CFRA also increased its price target for Gap, albeit maintaining a Hold rating due to perceived limited growth.
Gap's third-quarter earnings report exceeded Wall Street's expectations, with an adjusted earnings per share (EPS) of $0.72 and a 1.6% year-over-year increase in net sales. The company's full-year 2024 net sales forecast has been revised to a range of 1.5% to 2.0% growth, and the company also expects a greater gross margin expansion of approximately 220 basis points year-over-year.
The company's operational efficiencies, strong inventory management, and recent market share gains in a softer apparel industry environment have been noted by analysts. BMO Capital Markets, TD Cowen, and Evercore ISI have all recognized Gap's strong performance and revised their price targets accordingly. These are recent developments that reflect the company's resilience and potential for continued growth.
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