Levi's are one of those fashion options that never really goes out of style. Sometimes they fade away for a while, but they have an odd tendency to come back just as hard later on. It's that kind of endurance, and that kind of potential, that are likely drawing investors to Levi Strauss & Co. (NYSE:LEVI), and also drawing analysts like Guggenheim to bump up assessments and price targets.
Guggenheim Puts a Little More On Levi's
More specifically, Guggenheim hiked its price target on Levi from $20 per share to $24, suggesting that there was a substantial amount of “pent-up demand” in the apparel market. This isn't the first time we've heard about the pent-up demand concept, but Guggenheim went a step farther. It noted that the growing optimism surrounding vaccinations was likely to drive release for that pent-up demand.
Guggenheim has been putting a lot of weight behind apparel stocks of late; stocks like Nike (NYSE:NKE) and Kohl's (NYSE:KSS) have seen some benefit here as Guggenheim analysts are looking for a greater return to normalcy in 2021. Given the state of 2020, meanwhile, it's hard to see how we could get much farther from normal than we did.
Looking Beyond Guggenheim
While Guggenheim's improved perception of Levi Strauss is a welcome one, how does it factor in to the broader analyst consensus? Based on our latest research, Guggenheim isn't so much rowing against the current as it is preaching to the choir. Levi's shares have a consensus rating of “buy”, and have had one for the last six months. The consensus ratios have also improved substantially in that time frame; six months ago, the company had one “sell” rating, two “hold”, and seven “buy”. Today? Nine “buy”. That's it. Nine “buy” ratings, and last month, it was just eight “buy” ratings. The sellers departed the field three months ago and the holders left last month.
The price target—along with the price—has been on a clear if slow uptrend as well. Six months ago, the company was at $19.11 for an expected share price. That slipped a bit to $18.88 three months ago, but came back to $20.13 a month ago. Now, it's currently at $21.33, showing that analysts are expecting positive news out of Levi Strauss and are projecting accordingly. Changes haven't exactly been brisk, though; aside from Guggenheim, the only other company to change perception this month was the Goldman Sachs Group, who not only launched a two-step upgrade from “sell” to “buy”, but also better than doubled its price target from $11 to $23.
Looking Beyond Analysts Altogether
This is all welcome news for anyone who was straddling the fence when it comes to holding or even buying, Levi Strauss shares. Certainly, having the support of analysts is valuable, but there has to be something to base that optimism on. Otherwise, the optimism goes largely nowhere and the end result is a loss of credibility for analysts.
While yes, “pent-up demand” is likely a thing—we saw what happened back around May and June when most states started re-opening businesses—it isn't likely to be a thing that lasts. Moreover, it's not likely to be a thing without significant stimulus, because the job picture isn't looking all that great these days either. People at risk of being thrown out of their homes—which is looking more likely than ever as lockdowns continue, restart, or continue to restart—aren't buying things.
That's where the beauty of Levi Strauss stock comes into play. Sure, pent-up demand and some kind of return to normalcy will help give the apparel maker a chance at recovery. That's not all it's been doing, though; recently, the company put a chunk of its headquarters up for sublease. Fully 100,000 square feet of space in Levi's Plaza is now up for leasing, and should such a move take place, that's a good slug of change going into Levi's pockets. Plus, that's a chunk of expense lost as the company no longer needs to cover all the costs of maintaining Levi's Plaza alone.
Plus, Levi's has done well in terms of adapting to conditions. E-commerce revenues were up 52% in the third quarter, and its online growth for traditional wholesale customers was comparably increased as well. That's let the company recover very quickly from the nigh-universal losses the second quarter of 2020 represented and makes it a more attractive play going forward.
Just to top it off, Levi's shares are fairly attractively priced. Selling for $20.13 as of this writing—roughly the cost of a large pizza in some places—adding a chunk of one of the biggest names in apparel around isn't onerous. So buying in now in the midst of something like a return to normalcy backed up by pent-up demand and sound cost-cutting measures is a recipe for success.
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