Markets
GPS

Why The Gap Blasted 10% Higher on Tuesday

What happened

Shares of The Gap (NYSE: GPS) popped on Tuesday, thanks to a major upgrade from Citigroup. Analyst Paul Lejuez at the influential bank doubled his price target on the retailer's stock, to $24 per share. Even after Tuesday's price jump, the shares were only trading at just above $17 apiece.

The analyst also upped his recommendation on the stock, to buy from the previous neutral.

Close-up of a hand making a thumbs-up gesture.

Image source: Getty Images.

So what

Lejuez is basing his very bullish new analysis on the value of Athleta, the successful athletic apparel brand owned by The Gap. He estimates it to be worth $3.6 billion on its own, and has sufficient room for meaningful growth -- after all, it operates in a retail segment that continues to be hot among consumers.

The Citigroup analyst speculated that The Gap could unlock considerable value from spinning off Athleta. This, despite the fact that the company's most recent plans for a divestment -- that off budget brand Old Navy --  were abandoned.

Now what

This week, we'll see if this optimism in The Gap's future is justified.

The retailer is scheduled to publish and discuss its second quarter of fiscal 2020 results on Thursday. Collectively, analysts tracking the stock are expecting a net loss of $0.40 per share, in sharp contrast to the $0.63 per share profit in the same quarter a year ago. Those prognosticators believe that the retailer will post revenue of $2.9 billion, down from the year-ago result of $4 billion.

10 stocks we like better than Gap
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Gap wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of August 1, 2020

 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

GPS C

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More