On Tuesday, Citi expressed confidence in Gap Inc. (NYSE:GPS), maintaining a Buy rating and a $28.00 price target.
"We anticipate a big 1Q EPS beat (AMC 5/30) of $0.25 (cons $0.14), driven by stronger ON comps of +4% (cons +2%) and stronger GM (+220bps vs cons +160bps)," wrote Citi analysts in a note to clients.
Citi expects Gap's management to keep its fiscal year 2024 sales guidance unchanged at a 1% decrease but to increase its EPS guidance from the current range of $1.30-1.35 to approximately $1.40 or more. This adjustment is attributed to the anticipated stronger gross margin. For the second quarter, the firm foresees guidance aligning with the consensus EPS estimate of $0.34.
The firm's positive outlook is further supported by expectations of sales and EPS growth in fiscal year 2024, driven by robust Old Navy comps, disciplined expense management, and improved gross margins. Citi also predicts a second-quarter acceleration in Old Navy comps as the brand faces easier year-over-year comparisons, particularly in the active segment, and sees potential for gross margin improvement compared to consensus as the company cycles past significant markdowns from the prior year.
Citi's stance on Gap comes at a time when investor sentiment towards the company has been mixed. However, the firm believes that the favorable risk/reward profile presents an attractive opportunity for investors leading into the first-quarter earnings report.
InvestingPro Insights
In the context of Citi's optimistic outlook on Gap Inc. (NYSE:GPS), recent metrics from InvestingPro provide additional insights into the company's financial health and market performance. With a market capitalization of $7.93B, Gap's valuation is underpinned by a P/E ratio of 15.71, reflecting a market sentiment that leans towards the positive side. The adjusted P/E ratio for the last twelve months as of Q4 2024 stands at 14.64, which is slightly lower and may indicate a more attractive valuation for investors.
InvestingPro Tips highlight that Gap has a history of maintaining dividend payments, doing so for 49 consecutive years, which could be a reassuring sign for income-focused investors. Additionally, the company has been profitable over the last twelve months and analysts have revised their earnings upwards for the upcoming period, signaling potential confidence in Gap's financial future.
The InvestingPro product offers additional insights with more InvestingPro Tips for Gap Inc., which can be found at https://www.investing.com/pro/GPS. For those looking to delve deeper into these analytics, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 7 additional InvestingPro Tips available that can provide a more comprehensive understanding of Gap's investment potential.
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