Wedbush: Gap Key Drivers Unchanged, 'Limited Opportunity' Going Forward

In a report published Friday, Wedbush analysts maintained a Neutral rating on

, while raising the price target from $41 to $42. In the report Wedbush noted, "Current trends in the company's primary business units remain unchanged, with Gap divisions struggling and not expected to turn until 1Q16, while Old Navy continues to execute well and deliver impressive top- and bottom-line results. Banana Republic's recent downshift in sales trends presents another potential hurdle for the company to overcome, but matters relatively little for the company's total operating results (accounting for just under 18% of total company sales)." Although both Gap and Banana Republic increased their promotional activities during 1Q, the company's merchandise margins remained flat. This indicates "how well Old Navy is currently performing," the analysts said. The company kept its FY15 guidance unchanged, despite softer-than-expected same-store-sales during 1Q, with tight cost control helping offset the revenue shortfall. The analysts expect the company to further increase its promotional activities due to the port issue and the Gap division's margin to come under more pressure, in view of the ongoing product challenges. "While performance at Gap seems unlikely to get worse from here, a prospective 1Q16 targeted turn provides little incentive for investors to own the stock in the near term," the analysts added. The upward revision in price target reflects a roll forward of the estimates.