Sterne Agee Begins Coverage of The Gap with as an “Underperform” (GPS)

Sterne Agee reported on Monday that they have began coverage apparel retailer, The Gap Inc.[[GPS] with an “Underperform” rating.

The firm has initiated coverage on Gap with an “Underperform” rating and $29 price target. This price target suggests a -14% drop from the stock’s current price of $33.87.

An analyst from the firm commented, “Gap Inc.’s 5% comp growth in 2012 was the best performance in 9 years, driven by a very successful colored denim launch. With no similar trend on the horizon in 2013, we believe it will difficult for GPS to lap last year’s successes. (Note that GPS has not posted consecutive positive-comp years since 1998-1999.) Margin compares are also challenging, as 2012 benefited from a reversal of sky-high cotton costs and significantly leaner inventories that limited markdowns. With units building and inventories up 9% at the end of 2012, if comp trends are to moderate, we believe the 2012 “turnaround story” is basically done here.”

The Gap shares were mostly flat during premarket trading Monday. The stock has increased 38% in the past year.

The Bottom Line
Shares of The Gap Inc.(GPS) have a 1.77% yield, based on Friday’s closing price of $33.87.

The Gap Inc.(GPS) is not recommended at this time, holding a DARS™ Rating of 3.4 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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