4. The Gap, Inc. (NYSE:GPS)
Upside from Current Levels: 19.24%
The Gap, Inc. (NYSE:GPS) is a specialty apparel company with a lifestyle brand portfolio encompassing Gap, Banana Republic, Old Navy, and Athleta, targeting various life segments. It has more than 3,500 stores and franchises across the globe, and operates in over 40 countries. Gap’s products include lifestyle and fitness items, adult apparel and accessories, training and sportswear, travel wear, and everyday wear.
The company suffered a fall from grace in the past years, announcing in 2020 that it would close around 30% of its North American Banana Republic and Gap stores by 2024, most of them in malls. The problem was simple: Gap didn’t grow up with millennials, losing the apparel race to trendier brands like Abercrombie & Fitch, American Eagle, and fast-fashion brands like Shein. While it grew with millennials, The Gap, Inc. (NYSE:GPS) failed to capture the hearts of GenZ, the new generation dominating the apparel retail industry.
However, the company is now making a comeback with changed management and revamped strategies. The Gap, Inc. (NYSE:GPS) is working to provide its customers with a new layout, enhanced digital execution, and increased cultural relevance, along with drafting a more transparent pricing strategy. The company has improved its global standing under new CEO Richard Dickson, reducing its inventory by 15% as compared to last year and growing its merchandise margin by 340 points.
These changes resulted in a 3% year-over-year increase in the company’s revenue in Q1 2024, which reached $3.39 billion and outperformed analysts’ estimates of $3.29 billion. The company’s sales growth is attributed to a 3% increase in store sales and a 5% growth in online sales. The stock is trading at a forward P/E of 13.68, a 13% discount to its sector. Analysts expect Gap’s (NYSE:GPS) EPS to undergo a 23.69% year-over-year growth by 2025 .
Analysts following the company have mostly been bullish on the stock, with TD Cowen recently upgrading it from a Hold to Buy rating with a price target of $30, with the primary reason being the company standing in the early transformation stages across all the brands in its portfolio.
The Gap, Inc. (NYSE:GPS)’s remodeling has caught the attention of analysts and investors due to its underappreciated growth potential. Its upgraded outlook is giving Wall Street analysts proof that the new CEO’s turnaround strategy of introducing trendier items and revitalizing marketing efforts is working. The Gap, Inc. (NYSE:GPS) sports a Moderate Buy rating, and its median price target of $23.97 represents an upside of 19.24% from current levels. The company’s shares are currently undervalued, with revised guidelines and management showing promising business growth. 39 hedge funds are bullish on The Gap, Inc. (NYSE:GPS) as of Q2 2024, with Two Sigma Advisors holding the highest stake.
