Why Gap (GPS) Was Upgraded

NEW YORK (TheStreet) -- Gap (GPS) was upgraded to "buy" from "neutral" by UBS Monday, with a price target of $50, up from the previous $41.

Gap was gaining 1.9% to $37.97 Tuesday.

Analysts Roxanne Meyer and Janice Ong cite increased square-footage growth, positive comps from e-commerce initiatives, "outsized exposure to athletic apparel, and inflection at the core business" as reasons for the upgrade. The analysts say these strengths "lead to one of the highest incremental margin stories in the industry."

As part of the upgrade, the analysts raised their 2014 earnings estimate to $3.02 a share from $2.99 a share.

----------

Separately, TheStreet Ratings team rates GAP INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate GAP INC (GPS) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 2.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.42, is low and is below the industry average, implying that there has been successful management of debt levels.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, GAP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • GAP INC has improved earnings per share by 14.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GAP INC increased its bottom line by earning $2.32 versus $1.57 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $2.32).
  • You can view the full analysis from the report here: GPS Ratings Report

If you liked this article you might like

Kraft Heinz's New CFO Is Just 29

This Is How to Avoid Becoming Amazon Roadkill

How Long Can This Rally Run?: Cramer's 'Mad Money' Recap (Monday 9/19/17)

Cramer: How to Avoid Being Amazon Roadkill

Analysts Wrong on iPhone; Retail Not Going Away: Best of Cramer