Zacks Investment Research downgraded shares of Gap Inc. (GPS) from OUTPERFORM to NEUTRAL on March 20, 2013, with a target price of $38.00.
We have downgraded our long-term recommendation on Gap to Neutral in anticipation of a possible rise in input costs and increasing inventory level, which may slow down the company's sales and margin growth trends. Moreover, we remain concerned about its global expansion plan as it continued to report negative international comps results. However, we believe that Gap's relentless endeavors to keep itself on the growth trajectory have paid off amidst sluggish economic environment. Gap's quarterly earnings of $0.73 per share exceeded the Zacks Consensus Estimate of $0.71 and surged nearly 66% from the year-ago quarter on the back of increased sales along with improved margins. Net sales increased 10.3% year over year to $4,725 million. For fiscal 2013, Gap expects earnings in the range of $2.52-$2.60 per share, an increase of 8%-12% from fiscal 2012. Moreover, from valuation perspective, the stock looks attractive as it trades at a discount to the industry average, based on forward earnings estimates.
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