The investment firm values Athleta at $3.6 billion on a stand-alone basis or in a sale. Citi estimates Athleta fiscal 2021 sales of $1.2 billion.
Analyst Paul Lejuez also doubled his price target to $24 a share.
Gap shares at last check were up 9% to $16.89.
After the company walked away from its plan to spin off its Old Navy brand - which Citi says did not make sense at the announced price - the firm says it might be time for Gap to revisit its spinoff plans with Athleta.
Lejuez says there is evidence the company's board is open to corporate actions, including a potential spinoff, and Athleta is one of the few athletic brands with a combination of scale and plenty of room for growth.
Tuesday's note also says that Old Navy's "off-mall value positioning" is favorable once the coronavirus lockdowns end. L Brands' (LB) - Get Report Victoria's Secret showed that it is possible to get out of a significant number of leases without much financial burden.
Victoria's Secret is closing 250 stores "without having to pay much to get out of leases," Citi's note says.
"Using $8.5 billion for Old Navy’s valuation and $3.6 billion for Athleta’s valuation, we get to a total enterprise value of $12 billion for the brands that we believe have significant value within the GPS portfolio. And the current enterprise value of GPS is $6.5 billion," Lejuez wrote.