Bank of America Securities analyst Lorraine Hutchinson reiterated a Hold rating on Gap Inc today and set a price target of $21.00.
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Lorraine Hutchinson’s rating is based on a mix of encouraging and concerning factors. The positive sales momentum from Old Navy and Gap is a promising sign for the company; however, the impact of tariffs presents a significant risk to earnings per share. The lower pricing power of Old Navy, due to its consumer base’s sensitivity to inflation, adds to the concern.
The company faces additional margin pressure due to tariffs, with management estimating a significant reduction in gross margin. While there are efforts to mitigate these impacts, the overall pressure remains substantial. Additionally, significant reductions in SG&A costs are challenging due to rising labor costs and reduced revenue from divestments. Despite these challenges, the stock’s current trading value is considered fair, given the positive sales trends but ongoing margin pressures.