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Gap Stock Up - Citi Doubles Price Target on Athleta Potential

Gap shares jump as a Citi analyst doubles his price target on the retailer.
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Gap  (GPS) - Get Gap, Inc. Report shares on Tuesday jumped after Citi analysts upgraded the stock to buy from neutral, citing the untapped potential of the company's Athleta brand. 

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. 

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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 L Brands, Inc. 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.