Merrill Upgrades Gap to 'Near-Term Strong Buy'

Analyst Mark Friedman sees a sales rebound for the fashion retailer as early as Fall

Merrill Lynch upgraded Gap (GPS ) to near-term strong buy from neutral.

Analyst Mark Friedman says he has increased confidence that sales are bottoming, and he believes in a rebound as early as this Fall can be reality. He does not expect a dramatic new look for Gap but rather an assortment that is cleaned up, brand appropriate, and fashion right. He notes a return to franchise items suggests investments in segments and styles that are most important to each brand's core identity.

Friedman thinks the biggest risk is that the customer has been disenchanted, and does not come back immediately. He raised his $0.35 fiscal 2003 (Jan.) EPS estimate to $0.45, and upped the $0.60 fiscal 2004 estimate to $0.75. He has a $18 12-month target.

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