We Continue To Favor Gap As A Long-Term Play, Says Canaccord

In a research note issued yesterday, Canaccord Genuity analyst Laura Champine maintained a Buy rating on Gap (NYSE:GPS) with a $50 price target, following the company’s second-quarter results, posting operating EPS of $0.70, excluding a preannounced gain of $0.05 related to an asset sale. This was a penny better than Champine’s estimate and consensus.

Champine noted, “The company continues to shrewdly manage operating expenses, generating 97bps of yr./yr. leverage. We had forecast a 4bps improvement. This was partially offset by gross margin 60bps below our estimate. Elevated promotional levels, particularly at the Gap brand are still squeezing margins. We continue to favor Gap as a long-term play as we expect omni-channel and supply-chain initiatives will reduce the dependence on markdowns and promotions. We think gross margin expansion will return in Q4 as GPS laps easier yr./yr. comparisons. Longer term, we are modeling for average annual increases of 27bps. We don’t think the current valuation at 15x our CY2015E EPS estimate and 7x CY2015E EV/EBITDA fairly reflects our five-year growth outlook.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Laura Champine has a total average return of 5.2% and a 52.3% success rate. Champine has a -3.7% average return when recommending GPS, and is ranked #906 out of 3257 analysts.

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