On Friday, Evercore ISI showed confidence in Gap Inc (BVMF:GPSI34) (NYSE: NYSE:GAP) by increasing its price target to $33.00 from $32.00. The firm maintained an Outperform rating on the apparel retailer's stock after a robust quarterly performance. Gap surpassed revenue expectations with a 1.6% increase, outperforming the industry, which saw a 1.5% decline.
The company's gross margins also exceeded forecasts, rising 140 basis points year-over-year to 42.7%. This improvement was attributed to merchandise margins and rent and occupancy (ROD) leverage. Despite overall same-store sales (SSS) growing by 1%, slightly below the expected 1.5%, Gap's performance still outdid Evercore ISI's projection of 0.9% growth.
Gap's Old Navy brand, however, experienced flat same-store sales year-over-year, which did not meet the anticipated growth of 1.0% to 1.5%. Analysts suggest that unusually warm weather may have negatively impacted Old Navy's sales by more than 100 basis points. Nonetheless, expectations for the fourth quarter are optimistic, with predictions of improved trends and a conservative outlook already factored into the company's guidance for both top and bottom lines.
The analyst's commentary highlighted Gap's strong quarter and the upward revision of the company's fourth-quarter guidance. The positive assessment reinforces Gap's position as a top performer, with the analyst placing the retailer among the top five companies with an Outperform rating.
In other recent news, Gap Inc. has made significant strides in its financial performance. The company's third-quarter earnings report surpassed Wall Street's expectations, with an adjusted earnings per share (EPS) of $0.72, 24% higher than the projected $0.58. This was primarily due to stronger-than-anticipated results across all metrics. Furthermore, Gap's net sales saw a year-over-year increase of 1.6%, exceeding the predicted 1.2% rise. The company also reported a gross margin expansion of 140 basis points year-over-year, reaching 42.7%.
Recent developments include JPMorgan raising its price target for Gap to $28 while maintaining a neutral stance. Analyst firms TD Cowen and Citi have also maintained a Buy rating for Gap, expressing continued confidence in the company. Additionally, Morgan Stanley (NYSE:MS) upgraded Gap's rating from Equalweight to Overweight, predicting a 20% increase in stock price.
Gap has revised its full-year 2024 net sales forecast to a range of 1.5% to 2.0% growth, an improvement from the previous guidance. The company also expects a greater gross margin expansion of approximately 220 basis points year-over-year. Moreover, Gap's full-year 2024 EPS is estimated to be approximately $2.00, above the Street's forecast of $1.88.
Gap has also amended the vesting terms for its performance-based restricted stock units for fiscal years 2024-2026. This move aims to align more closely with the performance period, providing immediate vesting upon performance certification. Additionally, Gap Inc. has adopted a Senior Executive Severance Plan set to take effect in 2024. These are among the recent developments surrounding the company.
InvestingPro Insights
Gap's recent performance, as highlighted by Evercore ISI's upgraded price target, is further supported by real-time data from InvestingPro. The company's P/E ratio of 10.67 suggests that the stock may be undervalued relative to its earnings, aligning with the analyst's optimistic outlook. This is particularly noteworthy given Gap's revenue of $15.17 billion over the last twelve months and a healthy gross profit margin of 49.28%.
InvestingPro Tips reveal that Gap has maintained dividend payments for an impressive 49 consecutive years, demonstrating a strong commitment to shareholder returns. This is complemented by a current dividend yield of 2.72%, which may appeal to income-focused investors. Additionally, Gap's liquid assets exceeding short-term obligations indicate a solid financial position, potentially supporting the company's ability to navigate market challenges and capitalize on growth opportunities.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide deeper insights into Gap's financial health and market position. These additional tips could be particularly valuable in light of the company's recent outperformance and the positive analyst sentiment.
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