10:54 AM EST, 11/22/2024 (MT Newswires) -- Gap (GAP) is likely on course for a boost to its earnings estimates after the apparel company's fiscal third quarter benefited from a number of positive surprises, Morgan Stanley said in a note emailed Friday.

Late Thursday, Gap reported earnings per share of $0.72 for the quarter ended Nov. 2, up from last year's $0.58, which was also the consensus on FactSet. Net sales rose 2% to $3.83 billion, higher than Wall Street's $3.81 billion view. The company expects full-year revenue to increase 1.5% to 2%, versus the previous guidance for it to be "up slightly" year over year.

"Holiday is off to a strong start," Chief Executive Richard Dickson said in a statement released Thursday. "Our performance year-to-date gives us the confidence to raise our full year outlook for sales, gross margin and operating income growth."

Key highlights in the third quarter included the Gap brand's momentum, Athleta's topline inflection and Old Navy's sales acceleration as the weather improved, Morgan Stanley said in the note.

"We leave the print with further conviction in brand reinvigoration execution" and its EPS upside potential over the near- to long-term, which could drive valuation re-rating, according to the brokerage.

The stock advanced 7.5% in Friday trade, bringing its year-to-date gain to 14%. Morgan Stanley maintained its overweight rating while raising the price target on the stock to $30 from $29.

Morgan Stanley is modeling for $0.38 in fourth-quarter EPS, compared with an implied guidance of $0.30. While the key holiday quarter will be highly competitive, Gap's "strengths suggest it may be able to successfully navigate this challenging environment more effectively than peers," the firm wrote. The brokerage raised its full-year EPS estimate to $2.04 from $1.91.

"We will, of course, compete with promotions in the quarter as we do so all the time, but we do it strategically," Dickson said on a Thursday conference call, according to a FactSet transcript. "We're able to compete well while we drive sales."

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