Earnings Beat: The Gap, Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

A week ago, The Gap, Inc. (NYSE:GAP) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. The company beat forecasts, with revenue of US$3.7b, some 2.5% above estimates, and statutory earnings per share (EPS) coming in at US$0.54, 30% ahead of expectations. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

Check out our latest analysis for Gap

Taking into account the latest results, Gap's 17 analysts currently expect revenues in 2025 to be US$15.0b, approximately in line with the last 12 months. Statutory earnings per share are expected to dip 8.5% to US$1.87 in the same period. Before this earnings report, the analysts had been forecasting revenues of US$14.9b and earnings per share (EPS) of US$1.76 in 2025. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.

The consensus price target was unchanged at US$28.08, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Gap at US$35.00 per share, while the most bearish prices it at US$14.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. One more thing stood out to us about these estimates, and it's the idea that Gap's decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 2.8% to the end of 2025. This tops off a historical decline of 0.6% a year over the past five years. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 4.9% annually. So while a broad number of companies are forecast to grow, unfortunately Gap is expected to see its revenue affected worse than other companies in the industry.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Gap following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply they will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Gap going out to 2027, and you can see them free on our platform here.

It is also worth noting that we have found 1 warning sign for Gap that you need to take into consideration.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.