Here's Why Mizuho Downgraded The Gap To Neutral

Betty Chen of Mizuho Securities on Tuesday downgraded shares of The Gap (NYSE: GPS) to Neutral from Buy with a price target lowered to $43 from a previous $45 as 2015 earnings are likely to be impacted by product adjustments, foreign exchange woes and stagnant margins.

Chen states that ongoing issues that led to negative comps in fiscal 2014, coupled with recent management changes within merchandise and marketing that may not be seen until the fall season results in a delayed improvement at the Gap brand. In addition, Old Navy will begin seeing increasingly difficult comp and margin compares in the second half of 2015.

Foreign exchange issues will likely "dampen" sales growth, according to Chen, who noted that the overall company may be negatively impacted by foreign exchange in 2015 by at least two to three percentage points as International represents roughly 22 percent of total company sales.

The analyst is also projecting for "flattish" gross margin trends in fiscal 2015 as growth opportunities abroad and omni-channel initiatives will barely deliver 20 basis points of operating margin gains following regression in fiscal 2014.