Gap Inc (NYSE:GAP) shares moved sharply higher after UBS upgraded the retailer to Buy from Neutral, arguing that the company is nearing a meaningful inflection in both sales and profitability that is not yet reflected in the share price.
Gap stock climbed more than 4% to around $27.75 in premarket trading. UBS lifted its price target by $15 to $41, implying roughly 52% upside, citing expectations for stronger earnings growth and a re-rating of the stock’s valuation multiple.
The bank said it anticipates improving revenue and profit momentum over the next year as recently launched initiatives begin to gain traction and performance at Athleta stabilizes. UBS now forecasts fiscal 2026 revenue growth of 4.4%, up from an estimated 1.9% in fiscal 2025, alongside earnings growth of about 14% in FY26 following a modest decline this year.
Investments aimed at expanding Gap’s beauty and handbag categories are expected to support both sales and margins, with UBS suggesting that the market is underappreciating the scale of this opportunity. The firm also expects Athleta’s growth trajectory to improve under its new leadership, applying operating strategies already in use across the rest of the group.
UBS highlighted increasing confidence in the core Old Navy and Gap brands, pointing to eight consecutive quarters of positive comparable sales growth. It added that investor concerns about a weak holiday trading period appear overstated.
Share buybacks are also expected to play a larger role in driving earnings. UBS now assumes annual repurchases of roughly 3% of shares outstanding, compared with less than 1% previously, with buybacks projected to reach $250 million in FY26 and $400 million in FY27.
Reflecting these changes, UBS raised its FY26 and FY27 earnings forecasts well above consensus and increased its valuation assumption to 14 times earnings from 11 times, citing what it views as a stronger and more sustainable growth profile for the company.