On Friday, BMO (TSX:BMO) Capital Markets adjusted its outlook on Gap Inc. (NYSE:GAP) shares, increasing the price target from $23.00 to $25.00 while maintaining a Market Perform rating on the stock. This adjustment follows Gap's report of a strong earnings per share (EPS) beat and a modest sales increase. The company's performance was highlighted by gains in gross margin due to improved merchandise margins and return on dollars (ROD) leverage.
Gap's recent financial disclosure revealed that all of its brands, except Old Navy, surpassed Wall Street's sales expectations, with Old Navy's shortfall attributed to weather-related impacts. Despite this, the company experienced overall share gains and has subsequently raised its full-year forecasts for sales, gross margin, and earnings before interest and taxes (EBIT) growth.
The retailer's management expressed optimism, citing share gains across all brands. The positive developments in merchandise margin expansion were specifically acknowledged. However, BMO Capital suggests that the current stock price already reflects these positive changes, implying that the market has already accounted for the recent improvements in Gap's financial performance.
The new stock price target of $25.00 is based on approximately 12 times Gap's projected earnings per share for the fiscal year 2025. The Market Perform rating indicates that BMO Capital views Gap's stock as likely to perform in line with the broader market expectations.
In summary, Gap's stronger-than-expected earnings and sales performance, coupled with an uplift in its financial outlook, have led to a revised price target from BMO Capital. The firm's analysis suggests that while the company's progress is favorable, the stock price may have already integrated these advancements.
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