Market Overview

Gap's Bear Case Could Soon Transition To Base Case

Gap's Bear Case Could Soon Transition To Base Case

Shares of Gap Inc (NYSE: GPS) fell 11.51 percent on Tuesday, after the company reported disappointing Q4 sales and Q1 guidance. Following the earnings call, analysts at Morgan Stanley reiterated an Underweight rating on the stock, trimming their price target from $26.00 to $20.00 – although they noted that there’s a considerable probability that their $15.00 Bear case actually plays out.

The firm pointed out that Gap’s Q1 comp guidance was reduced by 5 percent, falling below the analysts’ most bearish 3 percent projection. In fact, “Brand equity concerns continue to rise across all divisions." The situation is particularly worrying at Old Navy, where April’s comp missed consensus by 1,250 basis points.

A Small Step From Bear To Base

Morgan Stanley’s report explained why the experts believe the $15.00 Bear case could soon turn into their Base case. It’s all about the Old Navy and Gap divisions: if the former fails to ameliorate its comp trajectory and the latter can't stabilize, the probability of the stock hitting $15.00 in the next 12 months should be considered likely.

The Bear case assumes a 4 percent comp decline in 2016 and a 3.5 percent tumble in 2017. In addition, it models a gross margin of roughly 35 percent for both 2016 and 2017, slightly below the Base case projections of 35.1 percent and 35.4 percent, respectively. Finally, the experts envision (in this case) a 0.5 percent decrease in SG&A in both 2016 and 2017.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Latest Ratings for GPS

Jan 2020MaintainsSector Perform
Jan 2020DowngradesBuyHold
Nov 2019Initiates Coverage OnUnderweight

View More Analyst Ratings for GPS
View the Latest Analyst Ratings

Posted-In: Morgan StanleyAnalyst Color Price Target Reiteration Analyst Ratings


Related Articles (GPS)

View Comments and Join the Discussion!

Latest Ratings

TSCOPiper SandlerMaintains119.0
UNPBMO CapitalMaintains200.0
UNPArgus ResearchMaintains205.0
ISRGJP MorganMaintains665.0
EHTHRBC CapitalMaintains132.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at