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Why Gap Stock Is Up Sharply Today

What happened

Shares of retailer Gap (NYSE: GPS) were up on Monday afternoon, after a Wall Street analyst gave the stock a double upgrade, moving his rating to the equivalent of buy from sell.

As of 2:45 p.m. EDT, Gap's shares were up about 9.1% from Friday's closing price.

So what

In a new note on Monday morning, Wells Fargo analyst Ike Boruchow raised his firm's rating on Gap's shares to overweight, two steps up from its prior underweight rating, with a price target of $19, up from just $8.

Noting that he has the only buy rating for Gap on Wall Street, Boruchow said that he sees the company as a "highly differentiated, idiosyncratic call." While Gap's ongoing struggles are now well understood by the market, Boruchow sees two "compelling value unlocks" for the company.

Specifically, he thinks that Gap's $1.9 billion in real estate holdings and its Athleta chain are underappreciated by investors, given that together they make up about 90% of the company's enterprise value now, in his estimate.

Image source: Gap.

Now what

Boruchow's take might surprise consumer discretionary investors who have long seen the Old Navy clothing chain as the company's crown jewel. But he did acknowledge that Old Navy remains a big contributor, saying that once the sector normalizes, Old Navy should generate earnings before interest, taxes, depreciation, and amortization of about $1.2 billion on an annual run-rate basis.

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John Rosevear 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.


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