Levi Strauss Could Hit New All-Time High on Strong Q2 Earnings; Target Price $31.5

Levi Strauss & Co, an American clothing company known for its Levi’s brand of denim jeans, is expected to report its fiscal second-quarter earnings of $0.09 per share, which represents year-over-year growth of around 120% from a loss -$0.45 per share seen in the same quarter a year ago.

The San Francisco-based jeans maker would post revenue growth of about 140% to $1.21 billion. In the last four consecutive quarters, on average, the company has delivered earnings surprise in all four times.

Levi Strauss’ better-than-expected results, which will be announced on Thursday, July 8, would help the stock hit new all-time highs. Levi Strauss shares surged more than 35% so far this year. The stock ended nearly flat at $27.46 on Friday.

Despite the recent stock price rally, Levi Strauss continues to trade at a discount to peers, thus we see an opportunity for the stock to re-rate further, particularly if the above-planned revenue recovery continues into 2H21, noted Kimberly Greenberger, an equity analyst at Morgan Stanley.

Levi Strauss Stock Price Forecast

Six analysts who offered stock ratings for Levi Strauss in the last three months forecast the average price in 12 months of $31.50 with a high forecast of $36.00 and a low forecast of $28.00.

The average price target represents 14.71% from the last price of $27.46. All of those six analysts rated “Buy”, while none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $28 with a high of $36 under a bull scenario and $16 under the worst-case scenario. The firm gave an “Overweight” rating on the jeans maker’s stock.

Several other analysts have also updated their stock outlook. Evercore ISI raised the target price to $36 from $30. Levi Strauss had its price target upped by JPMorgan to $34 from $29. JPMorgan Chase & Co. currently has an overweight rating on the blue-jean maker’s stock. UBS Group increased their price target to $34 from $29 and gave the company a buy rating.

Analyst Comments

LEVI’s Mar-May quarter (2Q) likely benefits from the favorable macro backdrop that boosted Softlines’ 1Q (Feb-Apr) results. LEVI’s impressive +36% YTD rally suggests a beat is expected. Stock likely trades on forward guidance, which we anticipate comes in above Street estimates,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.

LEVI’s +24-25% y/y 1H21 revenue guidance appears conservative, particularly in light of management’s encouraging 2QTD commentary on the last earnings call and the outsized beats reported by peers with Feb-Apr quarters. The ‘Denim Resurgence’ trend may also contribute to a potential 2Q21 revenue beat. We think gross margin meets (and likely beats) consensus expectations, driven by clean inventories, a mix-shift towards digital sales, and greater international revenue growth as Europe sales gradually recover. We forecast 8c EPS, in-line with consensus and at the high-end of management’s 7-8c adj. EPS guidance.”

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Levi Strauss Shares Rise About 5% on Strong Q1 Earnings, Upbeat Outlook

Levi Strauss & Co, an American clothing company known for its Levi’s brand of denim jeans, reported better-than-expected earnings and revenue in the first quarter of 2021 and raised its half-year revenue growth guidance on assumption that there will be no significant worsening of the COVID-19 pandemic or dramatic incremental closure of global economies.

The world’s largest maker of pants said net revenues fell 13% year-over-year to $1.3 billion but beat Wall Street consensus estimates of $1.25 billion. Adjusted Diluted EPS came in at $0.34, beating analysts’ estimates of $0.25 per share.

Levi Strauss raised its fiscal first-half 2021 reported net revenues outlook to 24-to-25 percent growth compared to the first half of 2020 and raised its first-half adjusted EPS forecast to 41-to-42 cents.

The company also declared and paid a dividend of $0.04 per share in the first quarter totaling nearly $16 million. In April 2021, the company increased the dividend to $0.06 per share for the second quarter totaling about $24 million.

Following this, Levi Strauss’ shares, which surged more than 4% in 2020, rose about 5% to $26.22 on Friday.

Analyst Comments

“We come away from 1Q21’s beat incrementally positive as Levi Strauss (LEVI) appears on track to deliver its 12%+ adj. EBIT margin target by 2022. Raising 1H21 estimates even with ongoing COVID-19-related headwinds as underlying business momentum prevails. Raising price target to $28 from $25 & reiterate Overweight,” noted Kimberly C Greenberger, equity analyst at Morgan Stanley.

“1Q21’s significant beat and raise and encouraging 2QTD trends prove management’s key strategic priorities are working, in our view. In fact, 1Q21’s outsized 13.3% adj. EBIT margin result, or 12.6% excluding 70 bps of transitory FX tailwinds, confirms that management’s 12% adj. EBIT margin target is not only attainable on normalized revenue levels, but beatable. As such, we leave the print incrementally positive on LEVI’s long-term revenue and margin expansion opportunity. With the stock trading at a discount to peers (11.5x FY22 EV/EBITDA vs. 14x peer average), we see an opportunity for the stock to re-rate further.”

Levi Strauss Stock Price Forecast

Five analysts who offered stock ratings for Levi Strauss in the last three months forecast the average price in 12 months of $30.00 with a high forecast of $34.00 and a low forecast of $25.00.

The average price target represents a 14.55% increase from the last price of $26.19. All of those five analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave the base target price of $84 with a high of $96 under a bull scenario and $56 under the worst-case scenario. The firm gave an “Equal-weight” rating on the medical technology company’s stock.

Several other analysts have also updated their stock outlook. UBS raised the stock price forecast to $34 from $29. Evercore ISI lifted the target price to $30 from $26. Guggenheim increased the price target to $29 from $26. Citigroup upped the price objective to $29 from $25. JP Morgan raised the price target to $29 from $24. Telsey Advisory Group lifted the price target to $27 from $24.

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Levi’s Outlook for Revenue Growth And Margin Opportunities Appear Intact: Morgan Stanley

Levi Strauss & Co, an American clothing company known worldwide for its Levi’s brand of denim jeans, warned after its net revenue plunged over 60% in the second quarter that the effect of the coronavirus would negatively impact their businesses even in the second half of this year.

Net revenue declined 62% to $497.5 million, largely due to the temporary closure of company-operated, franchise and wholesale customer retail locations as a result of the COVID-19 pandemic, partially offset by the company’s e-commerce business which grew 25% for the quarter, with sequential month-over-month acceleration to nearly 80% growth for May, the company said.

The company recorded a net loss for the quarter of $364 million and an adjusted net loss of $192 million. Gross margin decreased 19.2 percentage points on a reported basis to 34.1%. Adjusted EBIT was a loss of $206 million.

The company also said that it would reduce our non-retail, non-manufacturing workforce by about 700 positions, or roughly 15%, which we expect will generate annualized savings of $100 million.

“Below-expectation 2Q20 results and challenging 2H20 likely pressure the stock near-term. However, e-commerce acceleration and expense cutting initiatives leave us constructive on Levi’s long-term margin story. Raise price target $1 to $18; remain equal-weight (EW),” Kimberly C Greenberger, equity analyst at Morgan Stanley noted.

“The company is in early innings as it executes its LT growth strategy and navigates softer U.S. wholesale. Levi’s experienced senior management team has proven it can deliver results. DTC, international, and underpenetrated category growth all present runways for revenue growth. Gross margin is the likely driver of EBIT margin expansion, though we do not expect further SG&A deleverage. Levi’s strong balance sheet and FCF growth should allow it to increase share buybacks and/or engage in potential organic M&A,” the analyst added.

While Levi has not yet re-closed any retail doors, the company closely monitors coronavirus trends for signals that may prompt re-closing. At this time, management indicates 40 doors are in areas of worsening virus trends. Even if stores do not re-close, deteriorating virus trends may dissuade consumers from shopping in-store – a potential headwind to expected 3Q revenue performance, Morgan Stanley noted

Morgan Stanley target price is $18 with a high of $25 under a bull scenario and $6 under the worst-case scenario. However, Telsey Advisory Group lowered its target price to $17 from $20 and UBS cuts price target to $25 from $27.

Three analysts forecast the average price in 12 months at $20.50 with a high forecast of $25.00 and a low forecast of $16.00. The average price target represents a 48.23% increase from the last price of $13.83. All those three analysts rated ‘Buy’, none rated ‘Hold’ or ‘Sell’, according to Tipranks.

However, we expect it is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.