Gap shares lagged the market in 2025. Why is UBS now expecting them to grow by 50%?

Investment bank UBS has started recommending buying Gap shares, expecting them to grow by more than 50% in the next 12 months. In its estimation, investors are underestimating Gap's initiatives to expand its business in the cosmetics and handbags areas. Gap shares have lagged the broad market in the past year. Nevertheless, optimism about them on Wall Street is growing.

UBS analyst Jay Saul raised his rating on shares of retailer Gap from neutral, corresponding to a "hold" recommendation, to "buy", CNBC reports. He also raised the target price of the securities from $26 to $41, which means that he expects them to grow by 54% within 12 months.

The bank said it expects revenue and earnings momentum to improve over the next year as Gap's recently launched initiatives start to deliver results and the Athleta brand's performance stabilizes. UBS now forecasts revenue growth of 4.4% in fiscal 2026 (starting in February) - compared to a projected 1.9% growth in 2025. Meanwhile, profit growth next year is expected to be around 14% after a moderate decline in the current fiscal year.

Investments aimed at expanding Gap's cosmetics and handbags categories are expected to drive sales and profitability. UBS believes that the market is underestimating the scale of these opportunities.

The company also expects Athleta's growth trajectory to improve under the new leadership by applying operational strategies that are already being utilized elsewhere in the group.

UBS noted growing confidence in key brands Old Navy and Gap, pointing to eight consecutive quarters of comparable sales growth. In addition, the company added that investor concerns about a weak holiday trading period appear to have been exaggerated.

Gap shares rose sharply after a new UBS valuation. They gained more than 8% in New York trading on Jan. 8, hitting their highest since Ma 2025, before correcting slightly. Last year, Gap shares lagged the broad market, adding 12%, while the S&P 500 index gained 17%.

Wall Street is generally optimistic about Gap, according to Market Watch data. Not a single investment firm now recommends selling the retailer's shares. And to buy them advise 12 of 20 analysts tracking the company. Over the past three months, the number of "buy" recommendations on Gap has increased by 50%.

This article was AI-translated and verified by a human editor