Gap, Inc. (The) (NYSE: GPS) and L Brands (NYSE:LB) are both mid-cap retail/wholesale companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitabiliy, risk, earnings, analyst recommendations, valuation, dividends and institutional ownership.

Dividends

Gap, Inc. (The) pays an annual dividend of $0.92 per share and has a dividend yield of 3.9%. L Brands pays an annual dividend of $2.40 per share and has a dividend yield of 5.6%. Gap, Inc. (The) pays out 53.2% of its earnings in the form of a dividend. L Brands pays out 63.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Gap, Inc. (The) has raised its dividend for 7 consecutive years and L Brands has raised its dividend for 6 consecutive years.

Profitability

This table compares Gap, Inc. (The) and L Brands’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Gap, Inc. (The) 4.46% 29.75% 10.69%
L Brands 8.87% -104.19% 12.93%

Volatility and Risk

Gap, Inc. (The) has a beta of 0.87, indicating that its share price is 13% less volatile than the S&P 500. Comparatively, L Brands has a beta of 0.62, indicating that its share price is 38% less volatile than the S&P 500.

Institutional & Insider Ownership

56.4% of Gap, Inc. (The) shares are held by institutional investors. Comparatively, 75.4% of L Brands shares are held by institutional investors. 27.3% of Gap, Inc. (The) shares are held by company insiders. Comparatively, 16.5% of L Brands shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Earnings and Valuation

This table compares Gap, Inc. (The) and L Brands’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Gap, Inc. (The) $15.52 billion 0.61 $2.05 billion $1.73 13.74
L Brands $12.40 billion 0.99 $2.43 billion $3.80 11.23

L Brands has higher revenue, but lower earnings than Gap, Inc. (The). L Brands is trading at a lower price-to-earnings ratio than Gap, Inc. (The), indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of current recommendations and price targets for Gap, Inc. (The) and L Brands, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gap, Inc. (The) 3 17 6 0 2.12
L Brands 3 16 9 0 2.21

Gap, Inc. (The) currently has a consensus target price of $25.89, suggesting a potential upside of 8.92%. L Brands has a consensus target price of $55.36, suggesting a potential upside of 29.77%. Given L Brands’ stronger consensus rating and higher possible upside, analysts clearly believe L Brands is more favorable than Gap, Inc. (The).

Summary

L Brands beats Gap, Inc. (The) on 11 of the 17 factors compared between the two stocks.

About Gap, Inc. (The)

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. In addition to operating in the specialty, outlet, online and franchise channels, it also uses the Company’s omni-channel capabilities to bridge the digital world and physical stores. 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. It also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico.

About L Brands

L Brands, Inc. operates specialty retail business. The Company is focused on women’s intimate and other apparel, personal care, beauty and home fragrance categories. Its segments include Victoria’s Secret, Bath & Body Works, and Victoria’s Secret and Bath & Body Works International. It sells its merchandise through company-owned specialty retail stores in the United States, Canada, the United Kingdom and Greater China, which are mall-based; through Websites, and through international franchise, license and wholesale partners. It operates in the retail brands, which include Victoria’s Secret, PINK, Bath & Body Works and La Senza. La Senza is a specialty retailer of women’s intimate apparel. It sells its La Senza products at over 120 La Senza stores in Canada. Henri Bendel sells handbags, jewelry and other accessory products through New York and 28 other stores. Mast Global is a merchandise sourcing and production function serving the Company and its international partners.

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