TD Cowen analysts raised their rating for Gap (GPS) stock from Buy to Hold and lifted the price target to $30 from $28 to reflect the potential upside to the company's fiscal year 2024 estimates.
GPS shares rose 2.7% on Tuesday.
The bank cited Gap’s solid top-line momentum and margin expansion as key catalysts, driven by continued inventory and expense management.
In addition, analysts’ bullish outlook is also in part due to positive developments in the company's brand transformation and more sustained growth at Old Navy, as well as the prospect for its Athleta brand to return to growth in the second half of fiscal year 2024.
“The new management has made lots of progress, and we believe there is room for further improvement,” analysts wrote.
Gap and Old Navy are also seen as better positioned for the back-to-school (BTS) season compared to the previous year, particularly with the introduction of a new denim cycle.
A conservative estimate suggests that if Athleta's comparable sales improve to high single digits in the second half of fiscal year 2024, as opposed to the approximately 15% decline in the same period of 2023, overall comparable sales could see a boost of approximately 100 basis points.
Lastly, TD Cowen highlighted that Gap's inventory levels and promotional activities remain well managed, “which should lead to gross margin upside.”