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Gap (GAP) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.
Analysts' growing optimism on the earnings prospects of this clothing chain is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For Gap, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
The company is expected to earn $0.43 per share for the current quarter, which represents a year-over-year change of +4.88%.
The Zacks Consensus Estimate for Gap has increased 5.91% over the last 30 days, as four estimates have gone higher while one has gone lower.
The company is expected to earn $2.37 per share for the full year, which represents a change of +7.73% from the prior-year number.
In terms of estimate revisions, the trend for the current year also appears quite encouraging for Gap. Over the past month, seven estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 10.46%.
Thanks to promising estimate revisions, Gap currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
While strong estimate revisions for Gap have attracted decent investments and pushed the stock 5.6% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.
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This article originally published on Zacks Investment Research (zacks.com).
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