Gap Jumps on J.P. Morgan Upgrade Ahead of Earnings Report

Gap, set to report third-quarter results on Tuesday, was upgraded to overweight at J.P. Morgan.
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Shares of Gap (GPS) - Get Report jumped Monday after analysts at J.P. Morgan upgraded the apparel retailer's shares to overweight from neutral ahead of its third-quarter earnings report set for Tuesday. 

The investment firm also raised its price target on Gap to $30 a share from $22. Gap shares at last check rose 8.7% to $26.50. 

"Looking forward, we see an embedded call option on Gap/Banana Republic with zero value attributed to the two brands today," analyst Matthew Boss said. 

That's "despite a potential near-term catalyst path with the Kanye West 'YZY Gap' launch in fiscal 2021 as a brand accelerator for Gap and a rotation back to workwear in light of vaccine news, a catalyst at Banana Republic, consistent with our 3-wave retail 'recovery.'" 

Boss says that the San Francisco company has underperformed the S&P 500 by 50% over the past three years, bolstering J.P. Morgan's potential upside view. 

The company's Old Navy brand will benefit from lateral retail closures and disruption post-pandemic, he said. 

And the Athleta brand will benefit from faster health/wellness/athletic tailwinds that led management to guide for a doubling of that brand's revenue base by fiscal 2023. 

J.P. Morgan raised its third-quarter same-store-sales estimate to a negative 0.2%. That compares with the consensus estimate of -2.5%.

That equates, J.P. Morgan estimates, to third-quarter earnings per share of 40 cents vs. the consensus 31 cents. 

Analysts surveyed by FactSet are expecting revenue of $3.82 billion.