On Wednesday, Stifel expressed confidence in Levi Strauss & Co. (NYSE:LEVI) shares, maintaining a Buy rating and a $28.00 price target for the company's stock. The optimism stems from positive direct-to-consumer (DTC) demand signals and a reduction in foreign exchange (FX) pressures.
The firm acknowledges potential challenges, including a weakening U.S. consumer market, uncertainties surrounding the upcoming election, and lukewarm consumer activity in China. Nevertheless, the relevance of the denim category and the company's merchandising strategies are expected to bolster DTC trends.
The analyst from Stifel highlighted that Levi's fiscal third-quarter 2024 estimates and the full-year 2024 guidance could surpass expectations. The forecast for the fourth fiscal quarter of 2024 includes mid-to-high single-digit revenue growth, which factors in a two-percentage-point boost from a 53rd week and an approximate one-percentage-point tailwind from current FX rates. This quarter is particularly significant as it is projected to account for over 40% of the modeled earnings per share (EPS) for the full fiscal year 2024.
The firm's valuation of Levi Strauss is based on the stock trading at 9.4 times its enterprise value to adjusted earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) for fiscal year 2025, and 13.8 times its adjusted EPS for the same period.
Stifel's stance is that the stock is undervalued when considering the company's potential for a mid-single-digit percentage organic revenue compound annual growth rate (CAGR), low-double-digit EPS growth, and a return on invested capital (ROIC) exceeding 20%.
Stifel's reiteration of the Buy rating and the 12-month price target underscores their view that Levi Strauss is positioned to capitalize on sustainable long-term growth opportunities. Despite acknowledging the risks posed by the current economic and political climate, the firm's outlook for Levi Strauss remains positive, suggesting that the company can meet and potentially exceed its fourth-quarter fiscal year 2024 revenue projections.
In other recent news, Levi Strauss & Co. has adjusted its timeline for achieving its revenue goal of $9 billion to $10 billion, initially set for 2027. The company has not yet provided a new timeline or the reasons behind this delay. In an executive transition, Tracy Layney, Executive Vice President and Chief Human Resources Officer, will be leaving her role in October 2024. The company has not yet announced a successor.
In financial highlights, Levi Strauss reported a 9% rise in constant currency revenue and record gross margins of 60.5% for Q2 2024. Despite a decline in the global wholesale business, the company's financial health was supported by an adjusted diluted earnings per share of $0.16, surpassing expectations.
Analysts from TD Cowen, and UBS have maintained a Buy rating on the company. TD Cowen has highlighted Levi Strauss's globally diversified growth and direct-to-consumer initiatives as beneficial, with a long-term margin expansion to 15% seen as achievable. Stifel has increased its price target for the company from $24 to $28.
Lastly, ongoing political unrest in Bangladesh may impact Levi Strauss among other global apparel retailers. The country, being the third-largest clothing exporter globally, has seen the closure of garment factories, potentially disrupting supply chains.
InvestingPro Insights
Levi Strauss & Co.'s (NYSE:LEVI) stock has been a topic of discussion among investors and analysts alike. With Stifel maintaining a Buy rating and setting a price target of $28.00, it is worth considering additional insights from InvestingPro. The company has demonstrated a commitment to shareholder returns, having raised its dividend for 5 consecutive years, showcasing a solid track record of financial stewardship. Additionally, Levi's is expected to be profitable this year, a reassuring sign for investors looking for stable earnings.
On the financial front, Levi's boasts a market capitalization of $8.27 billion, reflecting its significant presence in the apparel industry. The company's Price/Earnings (P/E) Ratio stands at 57.67, which may suggest a higher valuation compared to the market average. However, when adjusted for the last twelve months as of Q2 2024, the P/E Ratio becomes more attractive at 19.59. In terms of performance, Levi's has experienced a remarkable 63.3% one-year price total return, indicating robust growth in its stock value over the past year.
For those seeking further insights, InvestingPro offers additional tips on Levi Strauss, including analyses on earnings revisions, stock technicals, and debt levels. Interested readers can find more information and tips on Levi Strauss at https://www.investing.com/pro/LEVI, where a total of 9 InvestingPro Tips are available to help investors make informed decisions.
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