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Gap’s Earnings Could Slide Another 11% This Quarter

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Gap’s 4Q16 results preview

Gap (GPS) is slated to release its financial results for 4Q16 and fiscal 2016 on Thursday, February 23, 2017. The results relate to the three-month period ending January 28, 2017.

In 3Q16, the company reported earnings per share that were in line with expectations and a better-than-expected top line. Revenue fell 1.5% YoY to $3.8 billion, around $60 million more than the consensus estimates. EPS fell 5% to 56 cents a share.

For the fourth quarter, the consensus is predicting an 11% YoY fall in the company’s EPS to 51 cents per share. Revenue is expected to rise 0.2% YoY to $4.4 billion.

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About Gap

Gap is a global apparel retail company. It sells apparel, accessories, and personal care products for men, women, children, and babies in more than 90 countries. The company is the owner of Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. It operates through 3,300 company-operated stores, 450 franchise stores, and e-commerce sites.

The First Trust Large Cap Value AlphaDex ETF (FTA) invests 0.92% of its holdings in Gap.

Valuations update and stock recommendation

Gap is currently trading at a one-year forward earnings multiple of 11.7x, operating in the middle of its 52-week price-to-earnings (or PE) range of 9.7x–15.5x. The company is cheaper compared to VF (VFC) and PVH (PVH), which are trading at 16x and 12.7x, respectively. Hanesbrands (HBI) is, however, trading at a discount to peers. The company is valued at a one-year forward PE of 10.6x.

The average 12-month price target by 30 analysts covering Gap is $25.52, which means that the stock could jump 6% over the next one-year period.

What’s in this series?

The current series is an earnings overview to Gap’s 4Q16 results. In the next four parts, we’ll review the company’s year-to-date performance, look at its stock market performance and valuations, and understand Wall Street’s view on the company.

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