Critical Analysis: Nordstrom (NYSE:JWN) vs. GAP (NYSE:GAP)

Nordstrom (NYSE:JWN) and GAP (NYSE:GAP) are both mid-cap retail/wholesale companies, but which is the superior business? We will compare the two companies based on the strength of their analyst recommendations, profitability, risk, valuation, earnings, institutional ownership and dividends.

Earnings & Valuation

This table compares Nordstrom and GAP”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Nordstrom	$14.97 billion	0.25	$134.00 million	$1.83	12.28
GAP	$15.17 billion	0.53	$502.00 million	($27.20)	-0.79

GAP has higher revenue and earnings than Nordstrom. GAP is trading at a lower price-to-earnings ratio than Nordstrom, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Nordstrom and GAP’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Nordstrom	-1.44%	-21.26%	-2.07%
GAP	5.05%	28.89%	6.92%

Dividends

Nordstrom pays an annual dividend of $0.76 per share and has a dividend yield of 3.4%. GAP pays an annual dividend of $0.60 per share and has a dividend yield of 2.8%. Nordstrom pays out 41.5% of its earnings in the form of a dividend. GAP pays out -2.2% 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.

Risk and Volatility

Nordstrom has a beta of 2.6, meaning that its share price is 160% more volatile than the S&P 500. Comparatively, GAP has a beta of 2.35, meaning that its share price is 135% more volatile than the S&P 500.

Institutional and Insider Ownership

88.7% of Nordstrom shares are owned by institutional investors. Comparatively, 58.8% of GAP shares are owned by institutional investors. 5.8% of Nordstrom shares are owned by insiders. Comparatively, 31.0% of GAP shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of current ratings and price targets for Nordstrom and GAP, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Nordstrom	3	10	0	0	1.77
GAP	0	3	0	0	2.00

Nordstrom currently has a consensus target price of $20.23, suggesting a potential downside of 10.13%. GAP has a consensus target price of $27.00, suggesting a potential upside of 25.76%. Given GAP’s stronger consensus rating and higher possible upside, analysts clearly believe GAP is more favorable than Nordstrom.

Summary

GAP beats Nordstrom on 10 of the 15 factors compared between the two stocks.

About Nordstrom

Nordstrom, Inc., a fashion retailer, provides apparels, shoes, beauty, accessories, and home goods for women, men, young adults, and children. It offers a range of brand-name and private-label merchandise through various channels, such as Nordstrom branded stores and online at Nordstrom.com; Nordstrom.ca; Nordstrom stores; Nordstrom Rack stores; Nordstrom Locals; ASOS; Nordstromrack.com; mobile application; and clearance stores under the Last Chance name. Nordstrom, Inc. was founded in 1901 and is headquartered in Seattle, Washington.

About GAP

The Gap, Inc. operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include adult apparel and accessories; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls. The company offers its products through company-operated stores, franchise stores, websites, and third-party arrangements. It has franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta stores and websites in Asia, Europe, Latin America, the Middle East, and Africa. The Gap, Inc. was incorporated in 1969 and is headquartered in San Francisco, California.