Stifel Sees Challenges at Gap (GPS) Continuing Amid Light August Comps; Affirms at 'Hold'
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Stifel affirms Gap, Inc. (NYS: GPS) with a Hold rating and $25 price target following August 2016 retail sales results, as issued on Thursday night.
With today's report, analyst Richard Jaffe commented,
We anticipate continued challenges in the near term at both the Gap and Banana divisions, despite management’s best efforts to improve product. The results are Old Navy are encouraging and we believe Fall product is both appealing and well-assorted. The prolonged underperformance at the Gap business despite management’s best efforts has undermined our confidence and limited our visibility for improvement. Management has announced an aggressive cost-cutting and business rationalization plan that will reduce expenses and improve profitability by closing underperforming stores.
While we believe this is the correct move, we recognize that this does nothing to improve the appeal or long term success of the Gap or Banana Republic brands. Our target price of $25, assumes a 12x multiple on our 2017 EPS estimate of $2.05. A 12x is in line with the two year average of the consensus out year multiple, which we view as appropriate given the continued challenges at the Gap and Banana divisions and limited visibility for near-term improvement, the analyst said.
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