Levi Strauss & Co. (LEVI) is a global leader in jeans wear and one of the world’s largest brand-name garment corporations. The company designs and markets jeans, casual wear, and related accessories for men, women, and children under the Levi’s, Signature by Levi Strauss & Co., Denizen, Dockers, and Beyond Yoga brands.

Its shares rose about 5% during the extended trading session on July 7 after the company reported strong second-quarter results. Its revenue grew 14.8% year-over-year to $1.47 billion, surpassing the consensus estimate of $1.43 billion. The revenue growth was driven by a 16% increase in Direct-to-Consumer net sales and a 15% increase in Global Wholesale net revenue.

Furthermore, the firm reiterated its FY2022 guidance despite a challenging macro environment. It maintained its FY2022 adjusted profits outlook of $1.50 to $1.56 per share. This compares to the consensus estimate of $1.55 per share. Revenues are expected to increase by 11% to 13% year-over-year to $6.4 billion to $6.5 billion. The consensus estimate for full year revenues is $6.42 billion.

Here’s what could shape LEVI’s performance in the near term:

Strong Profitability

LEVI’s trailing-12-month net income margin of 9.5% is 44.5% higher than the industry average of 6.6%. Also, its ROC, ROE, and ROA are 85.6%, 119.9%, and 83.2% higher than the respective industry averages. Furthermore, its gross profit margin of 58.3% is 58.6% higher than the industry average of 36.8%.

Impressive Growth Prospects

Street expects LEVI’s revenues and EPS to rise 11.4% and 5.4% year-over-year to $6.42 billion and $1.55, respectively, in fiscal 2022. In addition, LEVI’s EPS is expected to rise at a 9.3% CAGR over the next five years. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.

Higher-than-industry Valuation

In terms of non-GAAP forward PEG, the stock is currently trading at 0.97x, 1% higher than the industry average of 0.96x. Moreover, it’s forward EV/EBITDA of 8.56x is 6.9% higher than the 8x industry average.

Consensus Rating and Price Target Indicate Potential Upside

Each of the seven Wall Street analysts that rated LEVI rated it Buy. The 12-month median price target of $26.14 indicates a 53.2% potential upside. The price targets range from a low of $19.00 to a high of $33.00.

POWR Ratings Reflect Stable Prospects

LEVI has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. LEVI has a B grade for Quality and Sentiment. The company’s robust profitability is consistent with the Quality grade. In addition, analysts’ favorable ratings and price targets are in sync with the Sentiment grade.   

In the C-rated Consumer Goods industry, LEVI is ranked #15.

Beyond what I’ve stated above, you can view LEVI ratings for Growth, Stability, Value, and Momentum here.

Bottom Line

LEVI’s financial performance in the last reported quarter was better than predicted, and it is on pace to generate significant growth in the coming quarters based on its aggressive expansion initiatives. While positive analyst estimates and the company’s exceptional profitability should help the stock soar, it could be wise to wait for a better entry point, given it’s higher-than-industry valuation.

How Does Levi Strauss & Co. (LEVI) Stack Up Against its Peers?

LEVI has an overall POWR Rating of C, which equates to a Neutral rating.  Check out these other stocks within the same industry with A (Strong Buy) ratings: Mannatech Incorporated (MTEX), Ennis Inc. (EBF), and Societe BIC SA (BICEY).

LEVI shares rose $0.04 (+0.23%) in premarket trading Friday. Year-to-date, LEVI has declined -31.18%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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