Deutsche Upgrades The Gap, Says Co Will Benefit From Easier Comps Going Forward

Gap Inc (NYSE: GAP) traders saw enough from the company’s September sales numbers to send the stock soaring 14.4 percent in Friday’s session. Deutsche Bank analyst Paul Trussell has also seen enough from Gap to upgrade the stock from Sell to Hold.

According to Trussell, the bar will be set much lower for Gap in coming months.

“With compares easing over the next few months, fit & fashion enhancements, & an improved apparel backdrop that includes cleaner inventories, strength in denim, & a more favorable weather outlook, we are upgrading shares of GOS to Hold from Sell,” Trussell wrote in a new note. He also believes inventory levels suggest strong margins headed into holiday shopping season.

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Although the company still has obstacles to overcome, Deutsche Bank credits Gap for prioritizing door closures, cost-cuts and supply chain improvements.

The headline -3.0 percent September sales comp came up in-line with consensus estimates. However, Trussell points out that a fire at the Fishkill distribution center single-handedly impacted September sales by 3.0 percent.

Old Navy was a particularly bright spot for the company in September, registering 4.0 percent year-over-year (Y/Y) sales growth.

In addition to the upgrade, Deutsche Bank has raised its price target for Gap from $18 to $24. Shares closed Friday up 15.23 percent at $26.25.

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