By Mackenzie Tatananni
Gap stock was on pace for its highest close in more than four months on Thursday. This analyst has four words for investors: believe in the turnaround.
UBS analyst Jay Sole upgraded shares of the apparel retailer to Buy from Neutral on Thursday and boosted his price target to $41 from $26. His thesis boils down to two determining factors: growth in Gap's beauty and handbag businesses, and improvement within Athleta, its activewear label.
Shares climbed 7.8% to $28.68 on the upgrade. If the gains hold, Gap will notch its highest close since May 22, 2025, according to Dow Jones Market Data. The benchmark S&P 500 index was down slightly.
Sole's price target suggests the price could soar 43% from Thursday's levels. In his view, sales and earnings growth rates for both categories will inflect positively on the back of Gap's initiatives to turn several struggling businesses around.
The analyst sees early signs of improvement. Eight consecutive quarters of positive same-store sales growth at the namesake Gap brand and Old Navy alike give credence to the argument that CEO Richard Dickinson's playbook is working, Sole said.
The beauty and handbag businesses are "untapped opportunities," the analyst continued, adding that the company "has acquired the necessary talent and experience to drive incremental revenue in both categories."
He sees Gap becoming a leader in handbags in the $25 to $60 price range over time. Moreover, if you take management's word for it, 70% of respondents in a recent survey said they would consider buying beauty products from Old Navy.
UBS expects the beauty and accessories category to generate $75 million in sales in 2026, $200 million in 2027, and $535 million in 2028, marking a gradual progression from 0.5% to 3% of net sales. The company has yet to break out specific figures for this product category in earnings releases.
As for Athleta, the activewear company has "a strong brand name," Sole contended. Its aided brand awareness -- a measure of whether consumers recognize a brand when prompted with logos or taglines -- has been stable in recent years.
"We believe this shows Athleta has the foundation on which it can stage a turnaround," the analyst said. The next step is to apply CEO Dickson's "Brand Reinvigoration Playbook," which has proved successful for the Gap, Old Navy, and Banana Republic brands.
UBS is modeling mid-single-digit revenue growth at Athleta by the second half of 2026. In the third quarter, both net sales and comparable sales declined 11% from the same period last year.
Attitudes on Wall Street are largely positive. Of 20 analysts tracked by FactSet, 13 recommend Buy or Overweight, while seven suggest Hold.
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 08, 2026 15:24 ET (20:24 GMT)
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