Thursday, May 21, 2009

Humming along at the Gap

AlphaNinja - The Gap (GPS) beat by a penny this afternoon. They continue to operate well through this horrible retail environment. Comp-store sales continue to decline, but less discounting has paid off.

Balance sheet is immaculate with nearly $2billion in cash, and the company continues to reduce shares outstanding.

On the conference call we learned that merchandise margin was up 1 percent, and the reason cited was "average unit costing." Using fewer vendors, e-sourcing, counter-sourcing, have helped the company keep costs of goods down.

Below is AlphaNinja's earnings and cash flow projections, and how I arrive at a target price of about $24. The stock is attractive here with a FCFY (free cash flow yield) of 12% , and will be more attractive if it falls to the low teens.

Disclosure - (long GPS)

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