What happened
Shares of Gap, Inc. (GPS +0.28%) surged today after two analysts upped their price targets on the clothing chain following its restructuring announcement last week. Gap stock closed up 6.4% on the news today.
Analysts at Jefferies raised their price target to $39 from $35 and called the retailer a top pick, while J.P. Morgan lifted its price target from $26 to $27 and maintained its neutral rating on the stock.
Image source: Gap.
So what
Jefferies, which has a buy rating on the stock, said that the Old Navy brand alone is worth 30% more than Gap's enterprise value and said that an analysis of the sum of the company's parts revealed a 50% upside to the stock.
Today's gains follow a 7.5% jump in shares last week after the company said it would close 200 stores. Gap said it would shutter about 200 underperforming Gap brand and Banana Republic stores, or about 10% of those brands' locations. Instead, it will focus its expansion effort on Old Navy and Athleta as it plans to add 270 of those stores over the next three years.
Now what
Investing in its better-performing brands seems like a smart move for Gap, but the company is still facing the same headwinds that much of the apparel retail world is. Comparable sales keep falling at Gap brand and Banana Republic, and store closures alone won't fix that. Ultimately, the Gap may need to rely on rivals closing stores as the retail environment continues to be overstored.
