Gap stock rose 7% on JP Morgan upgrade

Gap (GPS.US) shares surged more than 7% following an upgrade from JP Morgan (JPM.US) to an Overweight rating on what it sees as a favorable risk-reward profile into 2021 following a long period of underperformance. The investment firm also raised its price target on Gap to $30 a share from $22 and believes that the company's shares are worth buying ahead of its earnings report which will be released tommorow – especially because investors can get its flagship brand Gap essentially for free. "Looking forward, we see an embedded call option on Gap/Banana Republic with zero value attributed to the two brands today," analyst Matthew Boss said.

That's "despite a potential near-term catalyst path with the Kanye West 'YZY Gap' launch in fiscal 2021 as a brand accelerator for Gap and a rotation back to workwear in light of vaccine news, a catalyst at Banana Republic, consistent with our 3-wave retail 'recovery.'" said Boss. He also believes that the company's Old Navy brand will benefit from lateral retail closures and disruption post-pandemic.

JP Morgan also raised its guidance for the apparel retailer's third-quarter earnings and now expects earnings of 40 cents a share, 9 cents per share ahead of the broad consensus. JP Morgan raised its third-quarter same-store-sales estimate to a negative 0.2% compared the analysts' expectations of -2.5%.

GAP(GPS.US) stock launched today’s session higher and broke above the upper limit of the upward channel. Currently price is approaching major resistance at $27.50. Should buyers manage to break above the aforementioned level, then upward move towards $31.25 may accelerate. However if sellers manage to halt advance there, the downward correction may start. The nearest support lies at $23.85. Source: xStation5

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