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Signage on the exterior of fashion retailer Gap’s Oxford Street store in London.
Ben Pruchnie/Getty Images
Gap
stock has gone from a double-digit year-to-date decline a few months ago to a 2% gain on Friday.
Wells Fargo
expects more gains to come.
Ike Boruchow reiterated an Overweight rating and $28 price target on Gap (ticker: GPS), one of his Top Picks, while raising his estimates for the company’s third-quarter results above the Wall Street consensus, ahead of the retailer’s analyst day this month. He said he is just as enthusiastic about Gap today as he was a few months ago, when he was the first sell-side analyst to go bullish on the shares.
The stock has done well since that call in June—the price nearly doubled over the summer—but the rally has slowed after the company delivered upbeat second-quarter numbers at the end of August.
Boruchow said there is reason to be upbeat about the company’s performance in the third quarter. His research shows that its Old Navy brand “has received an outsized benefit from the prolonged back to school (BTS) season into September,” he said. “Furthermore, we believe that September is the third quarter’s largest month (we estimate nearly 40% of sales), which should insulate…results from any October uncertainty.”
Gap is slated to report fiscal third-quarter earnings on Nov. 19. Boruchow thinks sales at stores open at least a year will be flat to 1% higher, while he previously expected comps to decline. Wall Street’s financial models point to a 3% fall.
His estimate that earnings per share will come in at 42 cents is also well above the 25 cent consensus call.
Boruchow is also enthusiastic about the company’s Oct. 22 analyst day. He noted that Gap could announce moves to be more aggressive in closing underperforming bricks-and-mortar stores (largely for its flagship Gap and Banana Republic chains), introduce cost-cutting initiatives and restructuring to bring the Gap brand back to profitability, and provide more details about the success of Athleta, its athletic-apparel brand.
News of this caliber could bolster confidence in Gap’s new management and its handling of the company’s portfolio of brands.
Gap was up 2.9% to $18.38 on Friday afternoon, bucking the broader market’s decline.
Write to Teresa Rivas at [email protected]
