On Wednesday, Citi reaffirmed its Buy rating on Gap Inc. (NYSE:GPS) stock with a steady price target of $32.00. The firm expects Gap to surpass second-quarter earnings per share (EPS) estimates when it reports after the market closes on August 29.
Analysts at Citi project a significant beat with a predicted EPS of $0.50 compared to the consensus estimate of $0.41. This forecast is attributed to a stronger gross margin (GM) improvement of 420 basis points (bps), which is higher than the consensus of 320 bps, and slightly stronger sales figures.
The firm foresees Gap's management revising its fiscal year 2024 (F24) sales and implied EPS guidance upwards, from approximately $1.60 to over $1.70, reflecting the positive outcomes of the second quarter.
Additionally, Citi expects the company to provide third-quarter guidance that aligns with consensus estimates at $0.59, as the company aims to maintain a conservative stance.
Citi's outlook for Gap's full-year 2024 includes potential sales and EPS growth, driven by robust comparable sales from Old Navy and Gap, effective expense management, and a continued strong gross margin. Following what was characterized as a strong first quarter, the second quarter is anticipated to further demonstrate this positive trend.
Despite the expectation of solid GM expansion in the second half of 2023, Citi sees an opportunity for Gap to reduce promotions across all its brands in the second half of 2024. This strategy is expected to lead to further GM improvements even as the tailwinds from lower product costs begin to subside.
Amid mixed market sentiment towards Gap, Citi has initiated a 30-day positive catalyst watch, similar to the approach taken before the first-quarter report, indicating a favorable risk/reward scenario leading into the second-quarter earnings release.
In other recent news, Gap Inc. has been in the spotlight following a series of financial forecasts and strategic decisions. Morgan Stanley (NYSE:MS) has upgraded Gap's rating from Equalweight to Overweight, predicting a 20% increase in stock price and expecting the company's 2024 earnings per share (EPS) to be $1.82.
The company's second-quarter EPS is anticipated to align with the consensus estimate of 41 cents. Furthermore, Morgan Stanley anticipates an average top-line growth of around 1% from 2025 to 2028.
In addition to financial projections, Gap has adopted a Senior Executive Severance Plan set to take effect on July 1, 2024, which will cover executives Katrina O'Connell, Horacio Barbeito, Chris Blakeslee, and Mark Breitbard.
Meanwhile, TD Cowen has raised Gap's price target to $28, attributing this to strong quarterly results and future expectations. The company's full-year 2024 guidance has been revised upwards, forecasting a mid-40% growth in earnings before interest and taxes (EBIT).
CFRA, however, has maintained a Sell rating on the stock, despite raising the price target for Gap to $20. The firm has also adjusted their fiscal year 2025 EPS estimate for Gap upwards by $0.40 to $1.60.
Lastly, Baird has raised the price target for Gap to $28, citing a significant margin and earnings beat, with the company's margins returning to pre-pandemic levels. These recent developments highlight the evolving nature of Gap Inc.'s financial performance and strategic decisions.
InvestingPro Insights
As Gap Inc. (NYSE:GPS) approaches its second-quarter earnings report, the latest data from InvestingPro highlights several key financial metrics and market performance indicators that investors may find beneficial. With a current market capitalization of $8.82 billion and a P/E ratio of 12.87, Gap presents itself as a company with a reasonable valuation in the retail sector. Notably, the company's revenue for the last twelve months as of Q1 2025 stands at $15.0 billion, despite a slight decline of 2.69% in revenue growth for the same period. This is counterbalanced by a quarterly revenue growth of 3.42% in Q1 2025, suggesting a potential turnaround in sales.
InvestingPro Tips also shed light on Gap's financial resilience and shareholder value. The company has maintained dividend payments for an impressive 49 consecutive years and has raised its dividend for the last three years, indicating a commitment to returning value to its shareholders. Moreover, Gap's liquid assets exceed its short-term obligations, which underscores the company's solid liquidity position. Analysts contributing to InvestingPro predict the company will be profitable this year, with Gap having been profitable over the last twelve months.
For investors seeking more in-depth analysis and additional insights, there are over 10 InvestingPro Tips available, which can be explored further by visiting https://www.investing.com/pro/GPS. These tips offer a comprehensive view of Gap's financial health and market potential, which may be particularly relevant given Citi's optimistic outlook and the upcoming earnings report.
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