Wall Street largely underestimates Gap's growth potential, one analyst said Tuesday, claiming Old Navy offers enough of a reason to bet big on the apparel retailer.
Jefferies has named Gap one of its top "Franchise Picks," pegging the stock with a buy rating and a higher price target of $39 per share, up from $35. Gap's stock closed Tuesday at $27.61, up nearly 6.5 percent.
Last week, Gap said it will be shifting its strategy to focus on its two "growth brands" — its cost-conscious Old Navy business and its athletic apparel lines within Athleta. The retailer has also offered up its first look at its divisions' margins.
After crunching the numbers, Konik said, the Old Navy nameplate is generating nearly three-fourths of its parent company's profits. With that growth, Old Navy is well on its way to hitting 80 percent of earnings in a few years, he added.
"Old Navy continues to exhibit positive data results from our webscrapes," Konik explained. "This makes us incrementally more confident about top-line trends. We believe this data, coupled with our store checks, suggests continued momentum for Old Navy ahead."