GAP: Disciplined Leadership And Brand Reinvigoration Will Support Durable Margin Recovery

We raise our fair value estimate for Gap by about $1.70 per share to roughly $27.70, reflecting analysts' higher price targets following a series of Q3 beats and growing confidence in the durability of the brand turnaround and revenue growth trajectory.

Analyst Commentary

Recent Street research reflects a generally constructive but still selective stance on Gap, with several firms raising price targets and a growing cohort moving to more positive ratings as execution improves.

Bullish Takeaways

• Bullish analysts highlight a clear turnaround in core brands, citing a string of quarterly earnings beats and positive comparable sales that support a higher earnings base and justify multiple expansion.
• JPMorgan and other bullish analysts point to a flywheel effect in Old Navy and Gap, with better product, marketing, and customer targeting driving more durable top line growth and operating margin recovery.
• Several upgrades frame the current phase as the early stages of a sustainable brand reinvigoration strategy, with disciplined leadership and improved merchandising expected to unlock long term double digit operating margin potential.
• Upside optionality in underpenetrated areas such as Athleta and beauty is viewed as underappreciated in current estimates, offering additional levers for earnings and valuation upside if execution continues to trend positively.

Bearish Takeaways

• Bearish analysts and those remaining Neutral argue that, despite recent beats, visibility into longer term profitability across the full brand portfolio remains limited, capping near term valuation upside.
• Some research notes stress that recent margin strength benefits from favorable AUR trends and disciplined inventory rather than fully proven structural improvements, leaving the story vulnerable if demand normalizes or promotions increase.
• There is caution that the recent share price appreciation has already priced in a meaningful portion of the turnaround, creating a more balanced risk or reward skew if execution slips or macro conditions weaken.
• Uncertainty around the pace of recovery in specific banners and categories, especially Athleta and newer initiatives, leads more cautious analysts to prefer a wait and see stance until traction is consistently reflected in consolidated results.

What's in the News

• Gap raised full year 2025 net sales guidance to 1.7% to 2.0% growth, tightening and modestly lifting its prior 1.0% to 2.0% outlook. This signals increased confidence in demand trends (company guidance).
• The company now expects approximately $20 million in net interest income for fiscal 2025, up from prior guidance of about $15 million. This reflects a stronger balance sheet and improved cash dynamics (company guidance).

Valuation Changes

• Fair Value Estimate has risen modestly, increasing from approximately $26.03 per share to about $27.71 per share, reflecting higher long term growth expectations.
• Discount Rate has declined slightly from roughly 9.84% to 9.77%, indicating a marginally lower perceived risk profile in the updated valuation work.
• Revenue Growth has increased from about 1.85% to roughly 2.10%, suggesting a small upward revision to long term top line growth assumptions.
• Net Profit Margin has edged down marginally from approximately 5.98% to about 5.98%, implying largely unchanged profitability expectations despite higher growth.
• Future P/E multiple has risen from around 12.7x to roughly 13.4x, signaling a modest expansion in the valuation multiple applied to forward earnings.