Earnings Buzz Makes Retailer A Buy

Gap Stores (GPS) is indicated up nearly 7% in premarket trading at over $15 after reporting better than expected fiscal fourth-quarter earnings last night.

However, now that the quarterly questions have been answered, I think this stock has a lot more room to move. The worst  supply chain issues that drove GPS down from $36 a appear to receding fast.

After all, management is comfortable with expectations of at least $1.85 per share in earnings in the coming fiscal year . . . and even as much as $2.05. For a company that just booked $1.44 per share in profit in the previous year, that’s solid performance.

Despite all the supply chain issues, the past year was still a good one for GPS as it was, with comparable sales up 2% since before the start of the pandemic. I will have more details in out issue next Tuesday, but the new numbers suggest that the company has turned the corner.

Buy GPS under $17. My $21 target is 11x the low end of the company’s earnings guidance. If you are an Inner Circle Subscriber following the Model Portfolio, allocate 5% to this stock under the Value classification.