Gap stock gains on JPMorgan upgrade, increased price target

Shares of retailer Gap (GPS, Financials) rose 6% after JPMorgan (JPM, Financials) upgraded the stock and raised its price target, citing positive comments from company executives in a recent meeting.

JPMorgan changed Gap’s rating from neutral to overweight and increased its price target to $30 from $28. Rather than just focusing on “repairing fundamentals,” the bank’s analysts highlighted that CEO Richard Dickson said the company was at an “inflection point” and was on a path to “continuous improvement.”

Called a “consistency plan,” Dickson’s approach emphasizes improved efficiency measures such as inventory management, marketing and operational savings, and invests in growth projects motivated by high-performing brands, analysts said. CFO Katrina O’Connell said the company is targeting “annual operating margin expansion” and aims to reach previous levels of profitability.

Both are above Wall Street consensus forecasts, with JPMorgan’s report forecasting earnings per share of $2.30 for fiscal 2025 and $2.53 for fiscal 2026.

Gap recently reported 2% third-quarter revenue growth of $3.83 billion and earnings rose to $274 million, or 72 cents per share, from $218 million, or 58 cents per share in the same period last year. Supported by a good start to the Christmas season, the company revised its sales forecast for the full year and now sees an increase of between 1.5% and 2%.

Gap Inc. has rejuvenated its brand image and improved its marketing strategy under CEO Richard Dickson, who took office in August 2023. Notable projects include the selection of new leadership for Banana Republic and the appointment of designer Zac Posen as Chief Creative Officer to Old Navy’s creative director.

These calculated initiatives have resulted in an improvement in market share across all branded stores as well as a strong start to the holiday shopping season. While Gap benefited from softer materials and looser fits, Old Navy saw demand for denim and active lifestyle clothing. Men’s clothing outperformed women’s clothing despite ongoing struggles at Banana Republic, and Athleta’s same-store sales increased thanks to marketing initiatives.

This article first appeared on GuruFocus.