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On Wednesday, UBS maintained its Neutral rating on Gap Inc. (NYSE:GAP) while increasing the company’s price target from $19.00 to $29.00. The revision reflects a positive stance on the company’s recent operational improvements and trend responsiveness. This optimism appears justified, as InvestingPro data shows Gap has delivered impressive returns of 32.8% over the past year and 19.13% year-to-date. UBS analysts acknowledged the effectiveness of management’s strategies in revitalizing the brand, noting signs that these efforts may be starting to pay off.
The firm highlighted Gap’s progress in achieving operational efficiencies and its ability to capitalize on current trends as key factors behind the improved outlook. According to InvestingPro analysis, the company maintains healthy financials with a current ratio of 1.6 and operates with moderate debt levels. However, UBS remains cautious, awaiting more evidence of consistent positive sales growth across all of Gap’s brand portfolio before adopting a more bullish position.
UBS’s projection for Gap includes a 3.4% five-year earnings per share (EPS) compound annual growth rate (CAGR), using 2024 as the base year. The firm’s estimate for fiscal year 2025 EPS is two cents higher than the current sell-side consensus, indicating a slightly more optimistic view than that of other analysts.
The price target increase to $29.00 comes as UBS looks for further signs of sustained sales performance improvement from Gap. The firm’s stance remains neutral until it can confirm that management’s strategies are leading to consistently positive sales comparisons for all of Gap’s brands.
The adjustment in price target by UBS suggests that while there is recognition of Gap’s potential to enhance value through strategic initiatives, the market is looking for more concrete evidence of long-term sales momentum across the retailer’s various brands before a more bullish sentiment can be justified.
In other recent news, Gap Inc. reported a Q4 normalized earnings per share (EPS) of $0.54, which exceeded consensus estimates by $0.17, alongside revenues of $4.15 billion, surpassing expectations by $79 million. The company’s Q4 gross margin improved significantly, expanding by 250 basis points to 41.3%, driven by reduced commodity and rent costs. Gap has projected revenue growth of 1% to 2% and an operating margin between 8% and 10% for the upcoming period. In another development, Old Navy, a brand under Gap Inc., announced a partnership with RADAR to implement AI-powered inventory tracking across its stores, aiming to enhance operational efficiency and customer service. Analyst activity around Gap Inc. includes Wells Fargo (NYSE:WFC) downgrading the stock from Overweight to Equal Weight with a lowered price target of $24, citing concerns about future margin improvements. Conversely, CFRA upgraded Gap’s stock rating from Buy to Strong Buy and increased the price target to $30, highlighting the company’s operational efficiency and attractive valuation. Evercore ISI maintained an Outperform rating with a $30 price target, noting Gap’s successful marketing strategies and potential for growth in key revenue-generating categories. Additionally, Gap Inc. updated its incentive plans for employees and directors to align their interests with those of the company and shareholders, aiming to drive long-term success.
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