After suffering lagging sales over the past year and a half, the world's largest specialty clothing retailer could be headed for recovery. Upgrading the stock to a buy this week, Bank of America analyst Dana Cohen says Gap (symbol GPS) looks "compelling" and outlined several scenarios for improvement in the next two years.
Cohen cautions that a short-term turnaround is unlikely. "Admittedly, one may need to be patient here, and time may be the biggest risk," Cohen says in a report. Given that the stock, at $18, is currently trading at 11 to 12 times analysts' 2006 earnings estimates, she says, "there is little in the way of expectations near-term."
The San Francisco retailer, which operates about 3,000 stores under the brand names Gap, Old Navy, Banana Republic, and Forth & Towne, has seen sales languish in recent quarters. The holiday season didn't boost optimism: Sales in stores open at least one year fell 9% in December. However, the company rolled out plans in January for a sweeping makeover to revamp store displays, increase customer service in fitting rooms and design clothes faster to keep up with shifting consumer tastes.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Cohen sees three possibilities for improvement. One leads to a turnaround via Gap's current initiatives. Another involves management changes in the company's senior divisions. If neither of those scenarios play out, Cohen says, a dramatic shakeout could occur at the senior management level.
Cohen's 12-month price target on the stock is $23.
--Katy Marquardt
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are SayingFederal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
-
Stock Market Today: Stocks Pop After Powell's Jackson Hole SpeechFed Chair Powell's Jackson Hole speech struck a dovish tone which sent stocks soaring Friday.
