Update: Piper Jaffray Downgrading Gap

Piper Jaffray is downgrading shares of Gap, Inc.

to Neutral from Overweight, and is lowering the price target to $25 from $19. In a note to clients, Piper Jaffray writes, "We are downgrading shares of Gap from Overweight to Neutral as rising product costs will have a significantly higher impact on gross margins than we and management had previously anticipated. FY12 EPS guidance of $1.40-1.50 was well below consensus of $1.83 and is being driven by a product cost increase of 20% for the fall and holiday season (Old Navy & Outlet). While we believe int'l growth offers long-term opportunities for top line growth and margin expansion, materially higher product costs and inconsistent comps should continue to pressure margins and limit valuation. Our new price target of $19 is based on 10x FY13E EPS of $1.90." Shares of GPS are down $3.86 in pre-market trading to $19.43.