The Gap (GPS), mcap=$4400m

GPS pitch:
– Market believes that GAP is a classic post-COVID retailer boom-bust story.
– Unprecedented industry conditions have led GPS to trade near its two-decade low.
– Multiple pending catalysts – FY’23 guidance, upward revisions, cost-cutting measures progress.
– Short-term/transitory headwinds have obscured fundamental changes that have led to significant margin improvement.
– Material optionality created by above-industry ecommerce growth is not well-understood by the Street.
– The variance from the street view comes from Athleta’s outsized growth, successful rebranding of Banana Republic, shuttering of underperforming stores, and reduced SG&A through non-necessary COVID safety measures.

GPS valuation:
– Targeting $2.50 EPS by FY’24.
– Applying a 12x P/E multiple (vs 13x historical) gives a $30/share price target.

Exp. gain: +150%

Full write-up (free guest account required):

Leave a Comment