On Friday, BofA Securities adjusted its price target on shares of Gap, Inc. (NYSE: NYSE:GPS), increasing it to $18.50 from the previous $15.50. Despite the enhanced price objective, the firm maintained its Underperform rating on the retailer's stock.
The revision follows Gap's first-quarter adjusted earnings per share (EPS) announcement of $0.41, which surpassed both BofA Securities' estimate of $0.12 and the consensus estimate of $0.13. This performance is attributed to successful brand turnaround initiatives. Additionally, Gap's comparable store sales (comps) rose by 3%, with positive results across all brands.
In light of these developments, BofA Securities has revised its full-year 2024 earnings per share estimate for Gap, raising it by $0.24 to $1.59. This adjustment reflects anticipated higher sales and an improvement in gross margin. The new price objective of $18.50 is based on a valuation of 5 times the fiscal year 2025 estimated enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), which is a shift from the previous year's multiple.
Despite the positive indicators, BofA Securities expresses caution regarding Gap's future performance. The firm anticipates that for margin expansion in the second half of the year, Gap will need to sustain consistent sales growth, especially as its Old Navy brand begins to compare against its previous positive results.
This expectation, according to BofA Securities, poses a risk to the continued upward trajectory of estimates, leading them to retain the Underperform rating on Gap's stock.
InvestingPro Insights
Gap Inc. (NYSE: GPS) has shown a remarkable ability to reward its shareholders, having raised its dividend for three consecutive years and maintaining dividend payments for an impressive 49 consecutive years. The company's dedication to shareholder returns is reflected in its current dividend yield of 2.66%. Investors should note that Gap's stock has experienced a high return over the last year, with a 193.6% price total return, signaling strong market confidence in the retailer.
Analysts are also showing optimism, with 4 analysts recently revising their earnings projections upwards for the upcoming period, a sign that Gap's financial health may be on an upward trend. Moreover, Gap's profitability is not just a future expectation; the company has been profitable over the last twelve months as of Q1 2023. For those looking to make informed investment decisions, there are additional InvestingPro Tips available, offering deeper insights into Gap's performance and potential. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the 5 additional tips listed on InvestingPro that could further guide your investment strategy.
From a valuation perspective, Gap's P/E ratio stands at 16.43, which may suggest a reasonable valuation relative to earnings. The adjusted P/E ratio for the last twelve months as of Q4 2024 is slightly lower at 15.54, potentially indicating a more attractive investment proposition when considering the company's earnings over the past year. With a market capitalization of $8.41 billion, Gap is a significant player in the retail sector, and its financial metrics provide a solid basis for evaluating its market position.
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