Bank of America said on Wednesday that falling demand for denim and a continued reliance on markdowns make it difficult to expect better performance from Levi Strauss. Analyst Christopher Nardone cut the clothing stock to neutral from buy. Nardone also cut his price target from $2 to $17, a 4% upside from Tuesday’s close. “While we continue to view LEVI as a best-in-class retailer with the opportunity for sustainable sales growth over the medium term (a combination of store growth and share gains), we think the stock will grow at 8x EV/EBITDA and Fairly valued at 14x P/E,” he said in a note to clients on Wednesday. The stock slipped about 2.5% in the premarket. It is up about 4.9% this year after falling 38% in 2022. Peers such as American Eagle and Abercrombie & Fitch have said demand for denim is down as consumers have moved to other styles. Nardone said Levi Strauss will outpace the broader industry in denim sales, but will still struggle in the first half of the year to meet sales from the same period a year ago. He also said that the company could face challenges within wholesale as those retailers remain focused on maintaining tight inventory. Nardone said there is also concern that the company may need to maintain promotions during the holiday season — typically the best time of year for retail — into the spring. Retailers have had to turn to sales and other promotions in recent months as they attempt to spur demand while consumers shift spending to services, or pull back altogether amid inflationary pressures. He expected the markdown to remain, while lowering his fiscal 2023 gross margin outlook, below Wall Street’s consensus. Nardone said increased third-quarter inventory and a planned software transition could stretch Levi Strauss’ timeline for finding better footing in the first half of this year. Still, he said the company could be helped by the impact of a warmer winter on demand and a weaker US dollar boosting Europe sales. But he said there is still some downside to Wall Street’s expectations for the company, as uncertainty around energy remains. Ultimately, he added that Levi Strauss is “a strong retailer with an attractive store development plan” and does not expect any disruption after Michel takes over as CEO of Gass. But he added that if the company is moving toward its medium-term goal of a 15% operating margin, a catalyst with less visibility is difficult to push to the upside for the stock. — CNBC’s Michael Bloom contributed to this report.