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Hotline Sample Report

This report is a sample for information purposes only. These recommendations are closed.
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12/21/2023 2:09:08 PM Eastern Time

Holding Up
By Karina Hernandez, Senior Research Analyst

 Click here to download PDF version

The market is holding up, but economic data continues to come in with big misses.

The Leading Economic Index (LEI) contracted again in November at -0.5%. This is the 20th consecutive month of contraction, fueling recession fears.

The non-financial component of the LEI dragged the index down the most with big hits from Consumer Expectations for business conditions and the ISM index of new orders.

The Kansas Fed Manufacturing Index came in at -4 in December from -3 in November.

Eight of the 11 S&P 500 sectors are trading up with Consumer Discretionary showing the largest gains.

The official Santa Claus rally starts tomorrow, maybe we should believe.

Long Idea: The Gap, Inc. (GPS) @ $21.13
Industry: Consumer Discretionary; Consumer Services
Click here to view the trading alerts that followed this recommendation

Trading Parameters
Status Closed
Entry Price$21.13
Entry Limitsee comments
Stop LossN/A
Target$25.50
Adjusted Target $29.50


Long Option Trade Parameters
Status Closed
Type Call
Option Symbol GPS240621C00021000
Entry Price $3.05
Strike Price $21.00
Expiration Date 6/21/2024
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BACKGROUND: The Gap, Inc. operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include denim and khakis; eyewear, jewelry, shoes, handbags, and fragrances; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls. The company offers its products through company-operated stores, franchise stores, websites, and third-party arrangements. It has franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta stores and websites in Asia, Europe, Latin America, the Middle East, and Africa. The company also provides its products through e-commerce sites. The Gap, Inc. was incorporated in 1969 and is headquartered in San Francisco, California.

SKINNY: We like the stock at this level and remain positive on GPS's restructuring efforts. Q3 results were solid, sending the stock up 10% the date it was releasing and indicating the turn is coming. GPS's brick and mortar stores are outperforming their online presence with sales comps getting less negative and driving margins to increase 260bp to 43.1%. GPS's gross margin improved because of being less promotional. Fundamentally, GPS remains strong with cash on hand doubling from a year ago to $1.35 billion and free cash flow at $544 million. Our target is $25.50.


Key Fundamentals
PEG  4.15
Book Value  6.63
Institutional Holdings  21.46
Price/Sales  0.49
Average Daily Volume  9.43M
Shares Outstanding  370.8M
Market Value  7.8B
Insider Activity  22 Buys 12 Sales
52-week High  22.08
52-week Low  7.22
Annual Earnings Estimate  1.2

Analyst Coverage
 Telsey Advisory Group Reiterated  Market Perform
 Evercore ISI Initiated  Outperform
 Wells Fargo Upgraded  Overweight



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