The Gap Inc. (NYSE:GAP) is one of the deep value stocks to buy according to analysts. As Gap prepares to report its second-quarter results on August 28, the memories of the 21% selloff in the company’s share price after last quarter’s results on May 28 are still fresh, keeping the market jittery about its upcoming guidance.
What was the main reason for such a sharp reaction? Gap had warned of a $250 million to $300 million potential hit from tariffs, which was higher than market expectations and was expected to hurt near-term growth and margins.
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However, not everyone agreed with this gloomy view. At the time, Citi analyst Paul Lejuez had argued that the guidance appears conservative as it doesn’t factor in the strength of the company’s core brands and its ability to adjust pricing to counter the impact.
Flash forward nearly three months, and the stock has further slipped 7% since that correction, reflecting scepticism. Analysts remain divided on whether Gap can engineer a meaningful turnaround in the near term.
More recently, on August 19, Bank of America Securities’ Lorraine Hutchinson reiterated a Neutral rating on Gap. She also reduced her price target to $21 from $25, driven by a 2% reduction in estimates for FY 2025 and a 17% reduction for FY 2026.
She acknowledged that sales at Old Navy and the Gap brand have been showing strength, which is a positive sign. At the same time, she cautioned that tariffs continue to weigh heavily on earnings potential. According to her, Old Navy’s customer base being more price-sensitive, the brand has limited room to raise prices. On top of this, higher labor costs and weaker revenue following divestments are adding further pressure on margins. In her view, the stock’s current valuation fairly reflects these crosscurrents.
That said, there are reasons not to dismiss Gap entirely. The positive sales trajectory in key brands shows that consumer demand for its core brands remains intact, while management is actively working to mitigate cost pressures. With shares already down sharply, some see value at current levels if management can stabilize margins and leverage its strong brand positioning.
The Gap Inc. (NYSE:GAP) is the largest specialty apparel company in America. It owns iconic brands such as Old Navy, Gap, Banana Republic, and Athleta, which offer clothing, accessories, and lifestyle products for men, women, and children.
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Disclosure: None. This article is originally published at Insider Monkey.
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