The analysts, led by Ike Boruchow, also ratcheted up their share-price target to $19 from $8. They acted on the strength of Gap’s women’s active wear brand, Athleta, and because of the hefty value of Gap’s real estate holdings.
As for Athleta, "even though athleisure has clearly accelerated due to the pandemic, this has not translated into a value appreciation for the Athleta brand within Gap," the analysts said in a commentary.
“GPS does not appear to be receiving any credit” for the fact that Athleta fits “squarely” in the athleisure category, the analysts added.
Athleta may be worth close to $2.5 billion, and a sale of the unit could be “highly value accretive,” the analysts said.
As for real estate, Gap’s holdings, which include its San Francisco headquarters and four distribution centers, may be worth $1.9 billion, they said.
“This real estate value is relevant when considering GPS’ enterprise value as a real asset that management could potentially look to monetize in the future via a sale leaseback transaction,” the analysts said.
The Wells Fargo analysts are more bullish on Gap than their Wall Street brethren. Gap has two buy ratings, 17 holds and four sells, with an average price target of $11, according to Bloomberg.
Gap shares traded at $11.57, up 8.49%. They have soared more than 48% over the last three months, compared to 34% for the S&P 500.