Gap's (GAP) sales and earnings growth are set to improve in the next 12 months due to growth initiatives in beauty and handbags and an improvement in Athleta's sales, UBS said in a note emailed Thursday.

The analysts said that the core Old Navy and Gap brands have delivered eight straight quarters of comparable sales growth, supporting confidence in management's strategy. "Our conversations with investors suggest some are worried GAP had a weak Holiday season, but we believe it was strong," they said.

The company is also investing in beauty and handbag categories, which are larger opportunities than the market currently assumes, the analysts added.

In addition, Athleta's new leadership team is expected to successfully turn around the brand. Share buybacks are also set to play a bigger role, with the company expected to repurchase more stock each year, boosting earnings per share, the analysts said.

The analysts raised their fiscal 2026 sales estimate by 2% to $16 billion from $15.7 billion, and their fiscal 2027 sales estimate by 5% to $16.9 billion from $16 billion. Earnings per share estimates were raised to $2.45 for fiscal 2026 from $2.20 and to $2.90 for fiscal 2027 from $2.40.

UBS upgraded Gap to buy from neutral and raised its price target to $41 from $26.

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