On Tuesday, Citi upgraded Gap Inc. (NYSE:GPS) from Neutral to Buy, increasing the price target to $28.00, up from the previous $21.00. The decision follows Gap's strong performance in the fourth quarter, where the company's Old Navy and Gap brands demonstrated momentum, and gross margins exceeded expectations.
Management's conservative guidance for fiscal year 2024, with an estimated earnings per share (EPS) of around $1.30, was noted. Citi anticipates a significant beat in the first quarter, expecting $0.25 in EPS compared to the consensus estimate of $0.13.
The upgrade is based on the expectation of sales and earnings surpassing the forecast for fiscal year 2024, similar to the previous fiscal year. Citi predicts that Gap will reach an EPS of $1.80 to $2.00 for the year, driven by stronger sales and improved margins. Despite ongoing supply chain challenges and increased marketing expenditures, Gap's earnings before interest and taxes (EBIT) margin remains low compared to 2019 figures – 4.0% in fiscal year 2023 versus 6.4% in fiscal year 2019.
Citi's analysis suggests that with the current momentum in Gap’s Old Navy and Gap brands, along with cost-saving initiatives, the company is on track to achieve, if not surpass, its fiscal year 2019 EBIT margin levels within this year. The firm also noted the stock's recent decline, with shares dropping 21% since March 21, 2024. Citi believes that at the current stock price levels, the risk/reward profile for Gap is favorable for investors.
InvestingPro Insights
Gap Inc. (NYSE:GPS) has been showing promising signs in the market, with Citi's upgrade reflecting positive sentiment towards the company's performance and future outlook. According to InvestingPro data, Gap's market capitalization stands at $8.3 billion, with a forward P/E ratio for the last twelve months as of Q4 2024 at 15.32, indicating the stock may be reasonably valued relative to its earnings. The company's dividend yield as of April 2024 is attractive at 2.7%, and with a significant 6-month price total return of 65.42%, investors have enjoyed robust growth in their investments. Furthermore, Gap's stock has achieved a remarkable one-year price total return of 167.85%, signaling strong investor confidence over the past year.
InvestingPro Tips highlight that Gap has raised its dividend for three consecutive years and has maintained dividend payments for 49 consecutive years, showcasing the company's commitment to rewarding shareholders. Additionally, analysts predict the company will be profitable this year, which is consistent with the EPS guidance provided by Citi. For investors seeking more in-depth analysis and additional insights, there are over 7 more InvestingPro Tips available for Gap Inc., which can be explored further by visiting the dedicated page at: https://www.investing.com/pro/GPS. To enhance your investing experience, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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