Morgan Stanley lowers Gap's stock to underweight

March 18
5:41 AM 2016

Kimberly Greenberger, an analyst at Morgan Stanley, lowered Gap's stock to an "underweight" rating from "equal-weight", citing key weakness in the company's business. The stock of the company dropped on Wednesday's trading session following the announcement by Morgan Stanley. The analyst lowered the company's stock after reducing it to neutral just two and half weeks before.

Morgan Stanley fixed an objective price of $26 for Gap's stock, 11% down from the present level. Shares of the apparel vendor fell as high as 3.6% during the intraday trading session and closed down at 1.4%. The company's shares, throughout the trading session on Tuesday, had climbed 32% and ended at $22.43, a four-year low on February 11.

According to the same analyst, the company can generate better results in a very short period, however, structural headwinds are considered too strong and could impact the retailer's share prices, margins, and sales in the long period. The structural headwinds like a decrease in apparel prices, rise in wages, mounting cost cuts, aging customers, draining free money flow are threatening sales growth and also force the company to reduce its share buybacks program.

Greenberger continued that the retailer's key brands like Gap and Banana Republic have lost their significance among customers. In addition, this problem requires a long period to be resolved, "leaving us confident [Gap] will continue to cede share like the department stores and teen retailers," she said.

The analyst also noted that this fall in share prices will continue if sales do not recover in Old navy stores, which could pull the stock further below to $15. MarketWatch quoted a FactSet data, which said that fourth quarter comparable store sales at Old Navy stores dropped 8%, indicating the first drop since 2011.

Meanwhile, Solomon Goldfarb, executive vice president, sold 1,123 of Gap shares at a median price of $29.54 for a net transaction value of $33,173.42 on March 7th. Upon completion of the deal, Solomon currently poses 6,444 of Gap shares worth at $190,355.76. However, institutional investors like Acropolis Investment Management boosted their shareholdings by 11.1% by purchasing additional 6,670 shares in the company during the fourth quarter, The HILLTOP NEWS reports.

Transamerica Financial Advisors enhanced its shareholding by 7.0% after purchasing additional 5,749 shares in Gap during the fourth quarter. Other institutional investors like DUPONT CAPITAL MANAGEMENT and Grimes & Company increased their shareholdings in Gap by 15.5% and 10.4% respectively during the fourth quarter. In addition, Honeywell International purchased new holdings worth at $12.35 million in the company.

Moreover, stock researchers at Jefferies & Co lowered their target price on Gap's stock to $34.00 from $42.00 in a research report published on February 26, 2016. FBR Capital, a brokerage firm, lowered their object price on Gap to $27.00 from $29.00 and also fixed a "reiterated" rating for the company. Robert W. Baird's experts lowered their target price to $26.00 from $28.00. RBC Capital Markets' analysts decreased their objective price to $23.00 from $26.00 on Gap's stock, as reported by Engelwood Daily.

Gap is an apparel company that specializes in brands like Old Navy, Gap, Piperlime, Athleta and Banana Republic. Recently, the company posted a decrease in fourth earnings hurt by poor sales in Old Navy stores. The apparel vendor is looking forward to improving its balance sheet in the coming period.

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