The upcoming year provides a rough backdrop for retail, according to Goldman Sachs. But Gap is a name the firm expects to do well.
Analyst Brooke Roach upgraded the Banana Republic and Old Navy parent to buy from neutral. She also hiked her price target to $18 per share from $10, implying upside of 29.5% from Friday's close. "While we acknowledge valuation is elevated for this business, we believe accelerating earnings growth will support share outperformance, particularly in a softer landing scenario," she said in a note to clients.
Roach said 2022 was a bad year for Gap because it was one of the first companies to feel pain from higher inventory, given the focus on plus-size products that did not pay off. That resulted in a need to clear excess inventories and weighed on brand momentum but she said the latter has started improving in recent months. In 2023, the company will feel tailwinds from resolved supply chain challenges and margin improvement as airfreight expenses relax.
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