Gap stock rating upgraded at CFRA, target raised to $30

On Friday, CFRA analyst Zachary Warring updated Gap Inc.’s (NYSE:GAP) stock rating from Buy to Strong Buy, while also increasing the 12-month price target from $25.00 to $30.00. The adjustment reflects a valuation based on 15.0 times the firm’s fiscal year 2026 (ending in January) earnings per share (EPS) estimate, which aligns with Gap’s five-year average forward price-to-earnings (P/E) multiple of 15.2x, a figure that stands above its peers. Currently trading at a P/E ratio of 10.15x and showing signs of being undervalued according to InvestingPro Fair Value analysis, Gap maintains strong fundamentals with an overall financial health score rated as "GOOD."

Warring has revised the FY26 EPS estimate slightly downward by $0.05 to $2.00 and has introduced an FY27 EPS estimate of $2.10. Gap recently reported a Q4 normalized EPS of $0.54, surpassing the consensus estimates by $0.17, on revenues of $4.15 billion, which was $79 million higher than expected. The company’s performance was dissected by brand for Q4, showing Old Navy’s comparable sales up by 3% year-over-year, Gap by 7%, Banana Republic by 4%, and Athleta experiencing a 2% decline. InvestingPro data reveals the company has maintained impressive dividend payments for 50 consecutive years, with a current yield of 3.39%.

The company’s Q4 gross margin showed significant improvement, expanding by 250 basis points year-over-year to 41.3%, attributed to decreased commodity and rent costs. Looking ahead, Gap has provided guidance for its revenues to grow by 1% to 2%, with an operating margin forecasted to be between 8% and 10%.

Warring has expressed a more favorable opinion on Gap’s stock due to the company’s effective execution across its brands and enhanced operational efficiency. While CFRA does not foresee substantial growth in revenues or earnings for FY26, Warring believes that the current valuation is too attractive to overlook, especially as Gap continues to successfully rationalize its store fleet.

In other recent news, Gap Inc. has reported strong financial results, with its first-quarter 2025 earnings surpassing expectations. The company achieved an earnings per share (EPS) of $0.54, exceeding the forecasted $0.36, and revenue reached $4.1 billion, slightly above the projected $4.07 billion. Gap’s strategic focus on brand reinvigoration and market share expansion has been credited for these positive outcomes. Notably, Gap’s Old Navy brand showed a 3% same-store sales growth, while the Gap chain itself experienced a significant 7% increase during the holiday season.

Additionally, BMO Capital Markets maintained a "Market Perform" rating for Gap, with a price target of $25.00, following Gap’s solid earnings beat and EBIT growth forecast for FY25. Meanwhile, Evercore ISI adjusted its price target for Gap shares to $30.00, down from $33.00, but continued to rate the stock as "Outperform" due to the company’s robust fourth-quarter performance. Despite some challenges with its Athleta brand, Gap’s overall financial health is bolstered by a strong balance sheet and a significant cash reserve. These developments reflect Gap’s ongoing efforts to enhance its brand portfolio and achieve sustainable growth.

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