Looking For A Top Stock? 3 Reasons Why Gap Is A Great Choice

The Gap, Inc. (NYSE:GPS) seems to be on a roll backed by its robust growth plans, solid first half of fiscal 2017 performance and other strategic initiatives.

Shares of this Zacks Rank #2 (Buy) company have gained 3.9% year to date against the industry’s decline of 32.3%. Also, the stock boasts a VGM Score of A, with a long-term earnings growth rate of 8%, which further highlights its potential.

Let’s Dive Deeper

Solid Focus on Growth Plans

Gap has been gaining from its consistent focus on enhancing product quality and responsiveness to changing consumer trends. In this regard, the company has been making constant efforts to boost its digital and mobile offerings, alongside improving product acceptance.

Meanwhile, Gap is in the process of speeding up its transformation plan by bringing meaningful changes to its product portfolio and operating capabilities worldwide. In fact, management remains focused on growing its brands in regions that offer greater structural advantage and potential to expand market share, besides closing underperforming stores.

Moreover, the company remains keen on streamlining its operating model by creating a more proficient global brand structure, which will enable its brands to utilize scale advantages more efficiently. These growth attributes make it clear that Gap remains committed to positioning itself better for long-term growth by setting its priorities right and channelizing the resources accordingly.

Sturdy Performance & Estimate Revisions

The aforementioned factors have aided the company to deliver a solid first half in fiscal 2017, along with providing an upbeat earnings outlook for the fiscal. Notably, the fiscal second quarter marked its second successive earnings beat while it delivered fifth consecutive quarter of positive sales surprise.

Also, comparable-store sales (comps) grew year over year for the third straight quarter, mainly driven by continued strength at the Old Navy brand fueled by improved traffic. Though Gap’s namesake brand witnessed a year-over-year drop in comps, it marked a sequential improvement backed by better product quality.

Management now envisions adjusted earnings for the fiscal year in the band of $2.02–$2.10 per share compared with the previous range of $1.95-$2.05. (Read more: Wall Street Lauds Gap's Q2 Earnings Beat, Higher View)

Consequently, the Zacks Consensus Estimate of $2.06 for fiscal 2017 and $2.13 for fiscal 2018 moved up 3% and 3.4%, respectively, in the last 30 days.

Other Strengths

The brick-and-mortar retailing concept has been losing its luster over the past few years in the United States as consumers have gradually shifted to online shopping. Therefore, in a move to streamline its North American business, Gap is enhancing its eCommerce and omni-channel capabilities by adopting a number of initiatives.

As part of its omni-channel endeavors, the company has been continuously extending its find-in-store, Reserve-in-Store and Order in Store facilities across various stores.

Alongside, Gap has a track record of maintaining disciplined capital management along with a strong balance sheet. This, coupled with strong free cash flow generation enables the company to boost earnings per share through large stock repurchases. As a result, shareholder value is enhanced via consistent dividend hikes.

Gap Vs Industry

From the above analysis, it is quite evident that Gap is a great choice and definitely deserves a place in your portfolio now.

Finding Retail Space Interesting? Check These Out

Some other top-ranked stocks in the broader Retail sector include The Children's Place, Inc. (NASDAQ:PLCE) , Canada Goose Holdings Inc. (NYSE:GOOS) and Five Below, Inc. (NASDAQ:FIVE) . While Children's Place currently sports a Zacks Rank #1 (Strong Buy), Canada Goose Holdings and Five Below carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place, with long-term earnings growth rate of 9%, pulled off an average positive earnings surprise of 16.3% in the last four quarters.

Canada Goose Holdings, with an impressive long-term earnings growth rate of 34.1%, delivered positive earnings surprise of 33.3% in the last reported quarter.

Five Below, with long-term earnings growth rate of 28.5%, came up with an average positive earnings surprise of 6.3% in the trailing four quarters.

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