Dive Brief:

• Gap's stock has surged 40% in the last three months, but the apparel retailer has fared as well as it can on Wall Street, according to Citi Research analysts, which cut their rating of its stock to sell from neutral with a $28 price target, according to reports from CNBC and The Street that cite an analyst report to clients. 

• The company’s Old Navy brand, which has consistently buoyed its sales results, won’t be able to maintain its momentum against its own previous good results, according to the Citi analysts.

• Jefferies Analyst Randal Konik also this week declared the Gap and Old Navy brands Black Friday winners, noting solid traffic and positive conversions on the day, according to a report on that note from Pymnts.com.

Dive Insight:

Gap earlier this year declared a new growth strategy that pins more on its Old Navy brand, already its stalwart performer, and less on its flagship brand. But it appears that Citi Research analysts believe that can only go so far.

"The stock is up nearly 40% over the past three months. … We believe this is above fair value," analyst Paul Lejuez wrote in a note to clients Thursday, according to CNBC. "In F18 [Gap] will face more challenging sales comparisons at Old Navy (after a strong F17 with comps +5% at Old Navy), [and] difficult merchandise margin comparisons."

With a new strategy unveiled Sept. 6, the company is acknowledging Old Navy's strength, and Gap's weaknesses. Earlier this month at the Goldman Sachs 24th Annual Global Retailing Conference, the company announced that Old Navy (along with its much smaller athleisure and workout wear brand, Athleta), would underpin a campaign for "long-term, balanced growth."

Over the next three years, Gap plans to add 70 net new stores after closing 200 underperforming Gap and Banana Republic locations and adding 270 Old Navy and Athleta outlet stores. Executives expect Old Navy to exceed $10 billion and Athleta to exceed $1 billion in net sales in the next few years, thanks to growth online and on mobile.

The move seems to be a tectonic shift, but Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, sees it as a rational one that neither abandons the Gap brand nor overly depends on Old Navy. "There’s nothing to say that Old Navy will be great five years from now," he told Retail Dive earlier this year. "But [CEO Art Peck] is trying to identify for the analysts what his growth businesses are. You’ve got a business that’s been going downhill — but by the way he never said he’s closing The Gap. It’ll still be a multi-billion-dollar business, but it’s a shrinking asset. The answer certainly can’t be the high-end business, Banana Republic. When you look at his statement carefully, I thought what he said was totally logical."

There's also evidence that Old Navy has stolen stales from its flagship sibling. Without merchandising improvements, which could be found in performance, fit and small details like high quality buttons and stitching at the Gap brand, that could continue, warns GlobalData Retail Managing Director Neil Saunders. "People don’t mind spending a bit of money on it," Saunders told Retail Dive earlier this year. "That’s the kind of thing that Gap could do and doesn’t. A little detail on a product can mean the difference between selling it at a discount and selling at full price."