Gap At Major Resistance Ahead of Earnings

Gap Inc. (GPS) is trading higher by more than 1% in Tuesday’s pre-market in reaction to bullish analyst commentary just two days before the Q1 2021 earnings release, when the apparel chain is expected to post a loss of $0.12 per-share on $3.4 billion in revenue. If met, the loss-per-share will mark a substantial improvement over the $2.51 loss posted in the same quarter last year when the pandemic forced retail shutdowns all around the world.

Long-Term Recovery Plan

The company owns and/or franchises brick and mortar storefronts in six continents through divisions that include Old Navy, Gap, Athleta, and Banana Republic. Steep 2020 losses forced the retailer to release a long-term recovery plan that includes a reduction in poorly-performing North American operations, limiting mall exposure, and investing in digital expansion. With this plan now in place, investors are likely to forgive a Q1 loss as long as it marks a major improvement over atrocious Q4 results.

Telsey Advisory Group analyst Dana Telsey raised her price target on Tuesday morning, noting that long-term initiatives announced in October should “contribute to improved profitability” but admits that “fourth quarter results are a continued reminder that significant challenges remain at the Gap and BR brands. Therefore, we maintain our ‘Market Perform’ rating, but given our increased estimates, we are raising our price target to $37”.

Wall Street and Technical Outlook

Wall Street consensus remains skeptical, with a ‘Hold’ rating based upon 4 ‘Buy’, 17 ‘Hold’, and 1 ‘Underweight’ recommendation. However, no analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $25 to a Street-high $40 while the stock is set to open Tuesday’s session more than $1 above the median $32 target. This placement suggests the stock is fairly-valued, lowering upside potential after earnings.

Gap posted an all-time high in the mid-40s in 2014 and broke down one year later, entering a steep downtrend that bottomed out during 2020’s pandemic decline. The subsequent uptick carved a vertical pattern that just reached heavy resistance at the 2015 breakdown and .786 Fibonacci retracement levels. Bears have the upper hand in this configuration, raising odds for a reversal and long-overdue intermediate correction.

Story continues

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Disclosure: the author held no positions in aforementioned securities at the time of publication.

This article was originally posted on FX Empire