Gap Inc Valuation – August 2016 $GPS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Gap Inc (GPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Gap, Inc. (Gap Inc.) is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Its products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfillment services. It also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. The Company’s segments include Gap Global, Old Navy Global, Banana Republic Global, Athleta and Intermix. Its omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store are tailored across its portfolio of brands. Gap Inc. The Company has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Taiwan and Hong Kong.

GPS Chart

GPS data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of GPS – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,217,523,751 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 74.56% Pass
6. Moderate PEmg Ratio PEmg < 20 10.99 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.00 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.95 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

GPS value chart August 2016

EPSmg $2.30
MG Growth Estimate 3.46%
MG Value $35.44
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $33.34
MG Value based on 0% Growth $19.54
Market Implied Growth Rate 1.25%
Current Price $25.27
% of Intrinsic Value 71.30%

Gap Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.87 in 2013 to an estimated $2.3 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Gap Inc revealed the company was trading above its Graham Number of $16.15. The company pays a dividend of $0.92 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.99, which was below the industry average of 26.26, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.61.

Gap Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

GPS charts August 2016

Net Current Asset Value (NCAV) -$2.61
Graham Number $16.15
PEmg 10.99
Current Ratio 1.54
PB Ratio 4.00
Current Dividend $0.92
Dividend Yield 3.64%
Number of Consecutive Years of Dividend Growth 7


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $3,945,000,000
Total Current Liabilities $2,555,000,000
Long-Term Debt $1,318,000,000
Total Assets $7,507,000,000
Intangible Assets $0
Total Liabilities $4,985,000,000
Shares Outstanding (Diluted Average) 399,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.83
Jan2016 $2.23
Jan2015 $2.87
Jan2014 $2.74
Jan2013 $2.33
Jan2012 $1.56
Jan2011 $1.88
Jan2010 $1.58
Jan2009 $1.34
Jan2008 $1.05
Jan2007 $0.93
Jan2006 $1.24
Jan2005 $1.21
Jan2004 $1.09
Jan2003 $0.54
Jan2002 -$0.03
Jan2001 $1.00
Jan2000 $1.26
Jan1999 $0.91
Jan1998 $0.58
Jan1997 $0.47

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.30
Jan2016 $2.47
Jan2015 $2.49
Jan2014 $2.20
Jan2013 $1.87
Jan2012 $1.59
Jan2011 $1.52
Jan2010 $1.30
Jan2009 $1.16
Jan2008 $1.08
Jan2007 $1.06
Jan2006 $1.02
Jan2005 $0.86
Jan2004 $0.72
Jan2003 $0.60
Jan2002 $0.67
Jan2001 $0.96

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – August 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – July 2016
10 Low PE Stocks for the Defensive Investor – July 2016
10 Most Undervalued Companies for the Defensive Investor – July 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016

Other ModernGraham posts about related companies

PVH Corp Valuation – August 2016 $PVH
American Eagle Outfitters Valuation – August 2016 $AEO
Hanesbrands Inc Valuation – August 2016 $HBI
VF Corp Valuation – August 2016 $VFC
L Brands Inc Valuation – July 2016 $LB
Michael Kors Holdings Ltd Valuation – July 2016 $KORS
Under Armour Inc Valuation – June 2016 $UA
Nike Inc. Valuation – May 2016 $NKE
Wolverine World Wide Inc Valuation – May 2016 $WWW
Ralph Lauren Corp Stock Valuation – February 2016 $RL


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.