TD Cowen analysts upgraded their rating for Gap (NYSE:GPS) to Buy from Hold, increasing their price target on the stock to $30 from $28 to reflect the potential upside in the company’s fiscal 2024 estimates.
The analysts attributed their positive outlook to Gap’s strong top-line momentum and margin expansion, driven by effective inventory and expense management. They also noted the positive impact of the company’s ongoing brand transformation and the sustained growth at Old Navy. Additionally, there is optimism for the Athleta brand to return to growth in the second half of 2024.
TD Cowen highlighted the significant progress made by the new management and sees potential for further improvements. They also believe that Gap and Old Navy are better positioned for the back-to-school season this year, particularly with the launch of a new denim cycle.
A conservative estimate indicates that if Athleta’s comparable sales improve to high single digits in the latter half of 2024, compared to the roughly 15% decline in the same period of 2023, overall comparable sales could benefit by approximately 100 basis points. Finally, TD Cowen emphasized that Gap’s inventory levels and promotional activities are well-managed, which should lead to gross margin improvements.