Gap Stock Has Been On a Tear. Here's How It Can Go Higher. - Barron's

Gap stock has gained nearly 270% in the past 12 months.

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After hitting a new high on Friday, shares of Gap were edging higher early Monday after an analyst at Wells Fargo upped his price target for the shares. He believes there’s still plenty of reason the retailer’s recovery can continue and that the stock can still soar higher.

Analyst Ike Boruchow reiterated an Overweight rating on Gap (ticker: GPS) and raised his price target to $40 from $32 following recent discussions with Chief Executive Officer Sonia Syngal and Chief Financial Officer Katrina O’Connell that left him “more confident in Gap’s go-forward prospects.” Boruchow was the first analyst to go positive on Gap last June, despite the concerns about mall-based retailers during the pandemic.

Gap’s Old Navy brand has always been a major part of Boruchow’s bullish thesis. In his note, he wrote that the division looks especially well-positioned to take market share in the current retail environment given its focus on value and family clothing. Moreover, he said there is a “huge back-to-school 2021 opportunity” given the major disruption to children’s fashion from the pandemic—back-to-school wardrobes looked different with distance learning.

In addition to Old Navy’s value, Gap’s other recent standout brand, Athleta, is “just getting going,” Boruchow wrote. Athleta has just 50% brand awareness among consumers, which is something that management intends to change with increased marketing. In addition, he noted that some 65% of the brand’s sales are digital, positioning it for continued growth as more people continue to favor online shopping. He said that just Old Navy and Athleta alone deserve to be valued at $35 or more a share.

Boruchow thinks there’s still reason for optimism with the flagship Gap banner as well, including the coming launch of its partnership with Kanye West and the company’s exploration of asset-light models to allow more profitable brand growth.

Combined with the company’s upbeat earnings report earlier this month, Gap’s “bull case can continue to build from here,” he concluded.

Gap is up 1.6% to $31.30 in recent trading. The shares have gained nearly 270% in the past 12 months and are up more than 50% since the start of the year. Dow Jones Industrial Average and S&P 500 futures were up about 0.2% and 0.1%, respectively.

Write to Teresa Rivas at teresa.rivas@barrons.com

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