Jefferies Says Old Navy Alone Worth More Than Gap’s Current Value

This morning, Jefferies analyst Randal Konik raised his price target for Gap (GPS) to $39 and added the shares to his firm’s Franchise Pick list, citing Old Navy’s potential and the company’s allocation of capital to support its growth.

BUY GAP: In a research note to investors, Jefferies’ Konik raised his price target for Gap to $39 from $35 and added the shares to his firm’s Franchise Pick list. With management divulging divisional margins for the first time and allocating capital toward growth – Old Navy, Athleta and eCommerce – and away from specialty – Banana Republic and Gap – the analyst argued that he sees the market underappreciating pieces of the organization, with his sum-of-the-parts analysis implying 50%-plus upside to the current share price. Investment changes will drive improved stability, predictability and stronger free cash flow, which should lead to upward earnings per share and multiple expansion, Konik contended. Moreover, the analyst pointed out that he is a buyer of Gap as Old Navy, which he believes could be a $10B chain, is well-positioned given fast fashion/value exposure and the company’s strategic moves, which are value enhancing long-term. Konik also noted that the company’s platform with cross-brand shopping is the only of its kind for companies that are multi-divisional. Konik reiterated a Buy rating on Gap’s shares.

PRICE ACTION: In morning trading, shares of Gap have gained over 3% to $26.82.