Stock Analysis

The Gap, Inc. Just Beat EPS By 24%: Here's What Analysts Think Will Happen Next

NYSE:GAP
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The Gap, Inc. (NYSE:GAP) shareholders are probably feeling a little disappointed, since its shares fell 2.6% to US$24.22 in the week after its latest third-quarter results. It looks like a credible result overall - although revenues of US$3.8b were what the analysts expected, Gap surprised by delivering a (statutory) profit of US$0.72 per share, an impressive 24% above what was forecast. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. 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

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NYSE:GAP Earnings and Revenue Growth November 29th 2024

Taking into account the latest results, Gap's 17 analysts currently expect revenues in 2026 to be US$15.2b, approximately in line with the last 12 months. Statutory earnings per share are forecast to decrease 4.2% to US$2.09 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$15.2b and earnings per share (EPS) of US$2.02 in 2026. So the consensus seems to have become somewhat more optimistic on Gap's earnings potential following these results.

The consensus price target was unchanged at US$28.59, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Gap, with the most bullish analyst valuing it at US$35.00 and the most bearish at US$16.00 per share. 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.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. From these estimates it looks as though the analysts expect the years of declining revenue to come to an end, given the flat forecast out to 2026. That would be a definite improvement, given that the past five years have seen revenue shrink 0.3% annually. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 4.7% per year. So it's pretty clear that, although revenues are improving, Gap is still expected to grow slower than the industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Gap's earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting that it's tracking in line with expectations. Although our data does suggest that Gap's revenue is expected to perform worse than the wider industry. The consensus price target held steady at US$28.59, with the latest estimates not enough to have an impact on their price targets.

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. At Simply Wall St, we have a full range of analyst estimates for Gap going out to 2027, and you can see them free on our platform here..

We don't want to rain on the parade too much, but we did also find 1 warning sign for Gap that you need to be mindful of.

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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.