On Friday, Gap Inc. (NYSE:GPS) shares saw its price target increased to $29 from the previous $22 by a Telsey Advisory Group analyst. The firm maintained a Market Perform rating on the retailer's stock.
This adjustment comes as Gap reported strong sales and earnings per share (EPS) for the third consecutive time, outperforming market expectations.
The company's impressive performance was attributed to multiple factors, including top-line growth, higher average unit retail (AUR) prices, improved merchandise margins, decreased commodity costs, and expense leverage.
Notably, all four of Gap's brands experienced positive comparable sales, with the exception of the Gap brand itself, which saw a slight year-over-year decline of 0.4%.
In light of the encouraging results, Gap has revised its annual outlook upwards, signaling confidence in the brand's direction under new leadership.
The company's management, however, has advised patience with the ongoing turnarounds of the Athleta and Banana Republic brands, acknowledging the uncertain consumer macroeconomic outlook.
The analyst's revised price target of $29 is based on a 15.9x multiple applied to the two-year forward EPS estimate of $1.82. This valuation multiple stands in comparison to the five-year average next twelve months (NTM) multiple of 14.3x and the recent specialty apparel NTM average of 16.6x.
Despite the positive developments and increased price target, the analyst recommends maintaining a Market Perform rating, reflecting a cautious stance amidst heightened market expectations and ongoing brand management transitions.
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