Jefferies upgrades Gap to Buy, citing momentum across brands and margin upside

Investing.com -- Jefferies upgraded Gap Inc. to Buy in a note Friday, pointing to strengthening momentum across its portfolio and what it sees as “meaningful upside” to both revenue and margins. 

In the note, analyst Corey Tarlowe said “new leadership has delivered a strong turnaround at both Gap and ON,” and highlighted improving trends at Athleta as another potential driver. Jefferies set a new price target of $30, with an upside case of $50.

The firm believes Gap is “well-positioned to drive L-MSD% SSS growth” and argued that the market is underestimating the retailer’s opportunity in beauty, which “could potentially generate an LSD% revenue lift and EBITDA lift over time.” 

According to Tarlowe, the company is now showing data trends that “should drive top- and bottom-line growth ahead of Street ests.”

Jefferies raised its fiscal 2027 revenue estimate to $15.9 billion, above the Street’s $15.7 billion, and lifted its EPS forecast to $2.50 versus the Street’s $2.16. 

The analyst wrote that they “see a path to ~9% or more over time” for operating margin, compared with the current consensus of about 7%, noting that Gap’s pre-pandemic decade average was 11%. 

He added that “GAP could reach $3.00 in EPS by FY’28… with an upside case of $4.00 on a ~12x P/E to reach $50.”

Jefferies also said Gap brand momentum “is real and continues to build,” citing the “Better in Denim” campaign, which hit roughly 150 million TikTok views, and an expected eighth consecutive quarter of same-store sales growth. 

Old Navy is “well-positioned to deliver strong value,” supported by survey data showing that value perception remains a key strength.

The firm also pointed to Athleta’s recovery, noting that improved execution and new partnerships could contribute to growth.