On Thursday, BofA Securities maintained a Neutral rating on Levi Strauss & Co. (NYSE:LEVI), with a steady price target of $22.00. The decision comes after Levi's third-quarter adjusted earnings per share (EPS) reached $0.33, surpassing estimates of $0.30. This beat was attributed to gross margins that exceeded year-over-year predictions by 450 basis points, which helped to compensate for sales that fell short of expectations.
Levi Strauss reported weaker sales, particularly in the Americas wholesale sector, which saw a 9% decline. This downturn was largely due to challenges faced in Mexico and issues with receipt timing in the company's Signature business. Despite these setbacks, the strength of the Levi's brand direct-to-consumer (DTC) sales continues to be a positive factor in the company's valuation.
In light of recent financial results, BofA Securities has made a slight revision to their forecast for Levi Strauss. The firm has reduced its fiscal year 2024 estimated EPS by $0.02, bringing it to $1.22, citing a lower expected EBIT margin. However, there has been no change to the fiscal year 2025 estimated EPS, which remains at $1.44, as well as the $22 price objective.
The maintained Neutral rating suggests that BofA Securities believes the current stock valuation adequately reflects the ongoing momentum in Levi’s DTC sales, despite the noted challenges in the wholesale segment. This rating indicates a view that the stock is fairly valued at its current price, given the company's financial performance and market position.
In other recent news, Levi Strauss & Co. is contemplating options for its Dockers brand, including a potential sale, as part of a strategic shift to focus on its core denim products. This move follows a decrease in quarterly revenue and a 15% drop in sales for the Dockers brand. Despite this, Dockers still accounted for approximately 5% of Levi's quarterly revenue of $1.52 billion.
In financial terms, Levi Strauss reported a third-quarter adjusted profit of $0.33 per share, surpassing the analyst consensus of $0.31 per share. However, the company has adjusted its timeline for reaching its revenue goal of $9 billion to $10 billion, initially set for 2027, without providing a new timeline or reasons for this delay.
In terms of analyst ratings, TD Cowen lowered its price target for Levi Strauss from $26 to $25, while maintaining a Buy rating. Stifel also maintained a Buy rating with a $28 price target, expressing confidence in Levi's direct-to-consumer strategy. Meanwhile, Citi reaffirmed its Neutral rating and a $21 price target, projecting third-quarter sales and earnings per share to align with consensus estimates and guidance.
In addition to these developments, Levi Strauss announced an executive transition as Tracy Layney, Executive Vice President and Chief Human Resources Officer, is set to leave her role in October 2024. Lastly, the company may face potential supply chain disruptions due to political unrest in Bangladesh, a significant clothing exporter.
InvestingPro Insights
To complement BofA Securities' analysis, recent data from InvestingPro offers additional perspective on Levi Strauss & Co.'s financial position. The company's market capitalization stands at $8.37 billion, with a P/E ratio of 58.5, indicating that investors are willing to pay a premium for Levi's earnings. This aligns with the InvestingPro Tip that Levi's is "Trading at a high earnings multiple."
Despite challenges in the wholesale segment, Levi's has demonstrated strong performance in other areas. The company's revenue for the last twelve months as of Q2 2024 was $6.15 billion, with a gross profit margin of 57.99%. This robust margin supports the company's ability to navigate market fluctuations and invest in its direct-to-consumer channels.
Another InvestingPro Tip highlights that Levi's "Has raised its dividend for 5 consecutive years," which may appeal to income-focused investors. The current dividend yield is 2.47%, offering a steady income stream alongside potential capital appreciation.
For readers interested in a more comprehensive analysis, InvestingPro offers 7 additional tips for Levi Strauss & Co., providing deeper insights into the company's financial health and market position.
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