Analyst Note| David Swartz |
No-moat Gap badly missed our sales and profit margin expectations in 2021’s third quarter as production and transportation delays proved too much to overcome. Moreover, product shortages have continued into the critical holiday season, possibly leading to a fourth-quarter loss. However, Gap has taken measures to lessen the impact, and the situation in Vietnam (30% of Gap’s sourcing) has improved as factories have reopened, so we think the long-term outlook is unaffected. Thus, we do not expect a material change to our fair value estimate of $26.50 per share and view Gap, down 16% in post-marketing trading, as undervalued.