On Thursday, Stifel maintained a Buy rating on Levi Strauss & Co. (NYSE:LEVI) but reduced the stock's price target from $28.00 to $25.00. The adjustment follows the company's third-quarter financial performance, which presented a complex picture of its current business state. Despite positive signs of brand health, including direct-to-consumer (DTC) growth and strong gross margins (GM), there were also areas that did not meet expectations, such as wholesale and Dockers performance.
The mixed results have prompted Stifel to adopt a more cautious stance on Levi's revenue and earnings outlook. The firm has adjusted its earnings per share (EPS) projections, decreasing the forecast for fiscal year 2024 by one cent to $1.22, and for fiscal year 2025 by twelve cents to $1.38. Additionally, Stifel introduced an EPS estimate of $1.53 for fiscal year 2026.
Despite the setbacks in growth and the lowered earnings expectations, Stifel's analyst believes that Levi's shares are undervalued and that the company has the potential to surpass performance predictions. The firm's commentary indicated a sense of frustration that Levi's growth isn't aligning with its near-term potential. However, the continued Buy rating suggests confidence in the company's long-term prospects.
The revised twelve-month price target of $25 reflects a more conservative view, taking into account the "noise" that has affected the credibility of Levi's revenue growth. The brand's strength remains a positive factor, but Stifel is taking a tempered approach to the valuation in light of the recent financial outcomes and the challenges noted in the quarterly report.
In other recent news, Levi Strauss & Co. reported adjusted earnings per share (EPS) of $0.33 for the third quarter, surpassing estimates. However, the company's sales did not meet expectations, particularly in the Americas wholesale sector. Analyst firms Citi and BofA Securities maintained their neutral stance on Levi, with price targets of $21.00 and $22.00 respectively, while TD Cowen reduced its price target from $26 to $25, maintaining a Buy rating.
Levi Strauss also announced it is exploring options for its Dockers brand, including a potential sale, following a decrease in quarterly revenue and a 15% drop in sales for Dockers. Tracy Layney, Executive Vice President and Chief Human Resources Officer, is set to leave her role in October 2024, with no successor announced yet. The company also adjusted its timeline for achieving its revenue goal of $9 billion to $10 billion, initially set for 2027, without providing a new timeline or reasons for this delay.
Potential supply chain disruptions due to political unrest in Bangladesh, a significant clothing exporter, may impact the company's trajectory.
InvestingPro Insights
Levi Strauss & Co. (NYSE:LEVI) presents a mixed financial picture, aligning with Stifel's recent analysis. According to InvestingPro data, LEVI's market capitalization stands at $8.37 billion, with a P/E ratio (adjusted) of 19.95 for the last twelve months as of Q2 2024. This valuation metric is notably lower than the current P/E ratio of 58.5, suggesting potential undervaluation relative to recent earnings.
InvestingPro Tips highlight that LEVI has raised its dividend for 5 consecutive years, demonstrating a commitment to shareholder returns despite challenges. This is further supported by a current dividend yield of 2.47%. The company's profitability over the last twelve months and analysts' expectations of profitability this year align with Stifel's maintained Buy rating, albeit with a reduced price target.
The revenue growth of 0.33% over the last twelve months and a more robust quarterly growth of 7.81% in Q2 2024 reflect the complex business environment Levi's is navigating. The company's gross profit margin of 57.99% underscores its brand strength and pricing power, which Stifel noted as a positive factor.
For investors seeking a deeper understanding of LEVI's financial health and growth prospects, InvestingPro offers 7 additional tips, providing a more comprehensive analysis to inform investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.