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Brokers: Time to step back in that Gap

Last updated: 13:36 07 Oct 2016 EDT, First published: 08:36 07 Oct 2016 EDT

Fashion

Once more unto the breach, the bard said. Time to step back in that Gap, Jefferies said.

September results from The Gap Inc (NYSE:GPS) showed a few promising developments, the broker noted, such as improved product response, which boosted merchandise margins; accelerating trends at the Old Navy chain; and things bottoming out at The Gap’s eponymous stores.

The broker is a buyer of the stock, saying that “cash flows matter and the metric is inflecting”, which is broker-speak for “getting better”.

It thinks Old Navy is well-positioned in the fast-fashion segment, while The Gap brand is still a viable one. On top of that, the group will be up against softer comparatives over the next two to four quarters, which should boost sentiment.

The broker has slightly upped its earnings estimates, which were already above consensus, to reflect better customer response and improving merchandise margins, though it acknowledges logistics problems – the group’s Fishkill distribution center was hit by a fire – will limit the share price upside for a while.

The price target is upgraded to US$32 from US$30 and the ‘buy’ recommendation is retained.

Wedbush Securities said the timing of the fund-raising announced after the close yesterday by AxoGen Inc (NASDAQ:AXGN) was perhaps a little surprising, and the amount it is intending to raise was not disclosed, the share issue should provide the nerve repair specialist with a more solid financial position as it heads towards profitability, projected for 2018.

Preliminary third quarter revenues of around US$11 million were up 36% year-on-year but US$1mln below Wedbush’s estimate, which is conceded was an “admittedly high revenue estimate” and in line with consensus.

“Nevertheless, we remain encouraged with the underlying trends taking place at the surgeon level, which gives us confidence that the company's overall healthy growth prospects remain intact. We would also note 3Q16 represents the company's second consecutive quarter of $10+ million in sales,”the broker said as it reiterated its ‘outperform’ rating.

The shares rose 11.2% to US$9.16 on Friday morning, homing in on Wedbush’s US$10 price target.

Elsewhere, Stifel has upgraded its rating for Dupont Fabros Technology Inc (NYSE:DFT) to ‘buy’ from ‘hold’, sparking a 2.7% hike in the share price.

Tyson Foods Inc (NYSE:TSN), meanwhile, has been downgraded to ‘sell’ from ‘buy’ by the Pivotal Research Group on concerns over what the broker calls “a powerfully convincing class-action complaint” that alleges Tyson, together with Koch Foods and multiple other players in the broiler chicken business, systematically colluded to reduce production of broilers since about 2008.  

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