Cowen & Co Upgrades The Gap (GPS) to Outperform

November 21, 2008 9:08 AM EST

Cowen & Co upgrades The Gap (NYSE: GPS) from Neutral to Outperform.

Cowen analyst says, "We are upgrading shares of GPS to Outperform from Neutral following the company's Q3 results. The shares are down 18% since Monday, and we believe the sell-off is overdone given the company's continued margin improvement, rock solid balance sheet, and cheap valuation. With $1.4B in cash on the balance sheet and our estimates for the company to generate $1B in free cash flow during FY09, the company has no financing concerns and can continue to return meaningful amounts of cash to shareholders through dividends and repurchases. The company reiterated FY08 guidance of $1.30 to $1.35 vs. $1.11, despite the deteriorating macroeconomic environment. The stock trades at less than 7x 2009E FCF...We believe the company should trade at higher multiples given its risk profile and ROIC of 15%. Our DCF model indicates the potential for substantial upside relative to the market over the course of the next twelve months."

The Gap, Inc. is a global specialty retailer operating retail and online stores selling casual apparel, accessories, and personal care products for men, women and children under the Gap, Old Navy, Banana Republic, and Piperlime brands.

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