April 28, 2016: Bought 105 shares of GPS at $23.40 per share.
Gap Inc. (NYSE:GPS) is a global apparel retail company that offers apparel, accessories, and personal care products under the Gap, Banana Republic, and Old Navy brands, among others. The company operates in the specialty, outlet, online, and franchise channels. It has 375 franchise stores in 41 countries. GPS was founded in 1969, and is headquartered in San Francisco, California.
GPS has an 11-year streak of consecutive dividend increases. The company pays quarterly dividends of 23¢ per share in the months of January, April, July and October.
I already own 60 shares of GPS, acquired in March 2015 at a cost basis of $41.42 and a yield on cost (YoC) of 2.22%. The stock price has been trending lower since then, so I'm lowering my cost basis and increasing average YoC with this buy.
The question to answer is whether GPS is worthy of my continued investment. I think so, otherwise I wouldn't have increased my investment!
I now own 165 shares of GPS, with an average YoC of 3.07% and a cost basis of $29.95 per share. The stock now trades at $21.67 and yields 4.25%. Here is a chart showing my buy prices:
The following table presents updated ratings of GPS from various sources:
†combined Value/Growth/Momentum score
According to Tipranks, based on 10 ranked analysts offering 12-month price targets in the last 3 months, the average price target for GPS is $27.22. Morningstar's fair value estimate is $40.00 while S&P Capital IQ calculates a fair value of $49.20.
Recently, I have started using the fundamental analysis tools provided finbox.io. The average fair value estimate of several models with default settings, is $29.03, which implies an upside of 34%.
Recently, GPS released dismal comps and sales number for March 2016, marking the twelve consecutive month of negative results. At the same time, GPS management expressed concerns that first quarter results for 2016 will come in below expectations. The company continues to focus on strategic initiatives to improve performance.
The company is experiencing competition from several well-established retailers, primarily on the basis of fashion, quality and service. Furthermore, the company's business is seasonal in nature. When GPS boosts merchandise levels in anticipation of good sales, it exposes itself to significant risk in case of seasonal failure. Finally, GPS continues to be exposed to currency headwinds, which will dent top and bottom-line results in 2016.
On the other hand, GPS is enhancing its eCommerce and Omni-channel capabilities to counteract the decline in brick-and-mortar retail. In the long run, these initiatives should benefit GPS and its ability to compete with online retailers. Also, GPS continues to leverage its globally recognized brands, including Gap, Old Navy, Banana Republic and Athleta. The company is increasing its international presence, including in China, Russia, South Africa and several Latin American countries.
I like GPS's policy of enhancing shareholder wealth. GPS has a solid track record of maintaining disciplined capital management and a strong balance sheet. The company is continuing to boost earnings per share through large stock repurchases and shareholder returns through dividend increases.
105 shares of GPS adds $96.60 to DivGro's projected annual dividend income. I updated my portfolio to reflect this recent purchase.
Do you own shares of GPS? Do you think GPS is a good dividend growth prospect?