On Monday, JPMorgan shifted its stance on Gap, Inc. (NYSE: NYSE:GPS), upgrading the stock from Underweight to Neutral, with an increased price target to $20.00 from the previous $16.00. The revision reflects a more favorable view of the retailer's financial prospects.
The report from JPMorgan highlighted several key factors contributing to the improved outlook for Gap. The assessment noted that approximately 80% of the company's sales, stemming from Old Navy and Gap, have stabilized with inventories appropriately adjusted as of the fourth quarter of 2022. Additionally, the second half of 2024 is expected to present opportunities for Athleta, as the brand refocuses on performance under new leadership from Alo.
JPMorgan's analysis also pointed to over 200 basis points of structural margin improvement that Gap could potentially recapture. This optimism is based on product cost recovery, identified cost savings of $150 million, and a more streamlined return on operating dollars structure, which is anticipated to yield a 200 basis points benefit compared to 2019.
In terms of earnings, JPMorgan projects a strong start to the fiscal year for Gap. The firm's first-quarter 2024 earnings per share (EPS) estimate is three times higher than the consensus, bolstered by expected gross margin expansion and product cost recovery.
The revised price target and stock rating come as Gap continues to navigate the competitive retail landscape, with strategic initiatives aimed at enhancing profitability and market position.
InvestingPro Insights
Following JPMorgan's upgrade of Gap, Inc. (NYSE: GPS), a closer look at InvestingPro's real-time data and tips sheds additional light on the retailer's financial health and market potential. Gap's market capitalization currently stands at $7.21 billion, with a relatively high price-to-earnings (P/E) ratio of 163.11, suggesting investors have high expectations for future earnings growth. Adjusted figures for the last twelve months as of Q3 2024 indicate a more moderate P/E ratio of 103.13. Meanwhile, the company's revenue for the same period was $14.83 billion, despite a revenue decline of 6.69%.
InvestingPro Tips further reveal that Gap has a track record of returning value to shareholders, boasting a high shareholder yield and maintaining dividend payments for an impressive 49 consecutive years. Additionally, the company has raised its dividend for three consecutive years. These factors, combined with the expectation that net income will grow this year, present a compelling case for investors considering Gap's stock.
For those looking to delve deeper into Gap's financial metrics and analyst predictions, InvestingPro offers a variety of additional tips. There are currently 9 more InvestingPro Tips available for Gap, which can provide further insights into the company's profitability, stock price movements, and analysts' profitability predictions for the year. To access these tips and enhance your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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