Worldwide clothing maker Levi Strauss & Co. (NYSE:LEVI) popped up around 3% in premarket action today following the release of the company's earnings report. The upward momentum has continued into this morning's trading with some profit-taking starting to take hold. The report shattered expectations on some fronts, beating Refinitiv estimates throughout. The win justifies the faith that financial analysts have in the firm, who are rapidly encouraging buying in on Levi's likely success story to come.
Levi's Stock Crushes Earnings Expectations, Tops Revenue
The clear winner for the clothing maker came in earnings, as the company posted earnings of $0.23 per share. A Refinitiv estimate looked for just $0.09, which put Levi's at nearly triple the estimated level. Levi's revenue also posted a beat, though not quite so pronounced; the company brought in $1.28 billion for the quarter but was expected to bring in $1.21 billion from a Refinitiv estimate.
While sales were still down a bit—about 3%—from 2019, it's clear that the company is making a post-pandemic comeback. In fact, Levi's now expects to top pre-pandemic levels of sales in the fiscal third quarter, which previously wasn't expected until the fiscal fourth quarter. Shoppers are reportedly stocking up on Levi's denim goods thanks to reopened stores and places to go throughout both the US and China. A recent major style change, in which tighter-fitting jeans are in decline against looser fits, is also prompting some wardrobe changes. Levi's also noted growth in its sales of tops. Further, given that just over a third, 35%, of consumers' waist sizes changed during the pandemic, the need to pick up new jeans went along with that.
The company also increased its expectations for the rest of the year in both revenue and earnings, though it did caution that those projections assume no more government lockdowns or significantly worsening pandemic operations. Levi's dividend also increased about a third, going from $0.06 to $0.08 per share, payable August 18 for shareholders of record before August 2.
Levi Strauss made great headway with its earnings report, and also likely made some gains on the strength of recent news seeking to keep its supply strong in an environment that's seen quite a few supply chain issues. The company, along with its various denim brands, signed on to the US Cotton Trust Protocol just days ago. The US Cotton Trust Protocol sets forth certain guidelines for cotton use, looking to establish more sustainable—and therefore readily available—cotton sources. Given that over 90% of Levi Strauss' entire product line is made with cotton, such a move helps ensure the company access to cotton for the long term and keeps it less susceptible to the various shortages we've seen in other markets.
What are Financial Analysts Saying About Levi Strauss Stock?
While consumers are buying Levi's jeans in substantial numbers, financial analysts are encouraging investors to buy the stock in similar fashion. Levi's stock currently carries a consensus rating of “buy”, and it's held that rating steadily for the last two years.
A year ago, Levi's had 10 “buy” ratings to its credit. Six months ago, that slipped to nine “buy” ratings. Today, we stand at eight “buy” ratings. While some might be concerned about the slow leak in the total buy rating count, remember that there has been neither a “hold” nor a “sell” rating issued on Levi Strauss for over a year now. Also consider that there were eight “buy” ratings on the company back in January 2020, which would have been issued pre-pandemic. A return to eight “buy” ratings suggests that Levi's is returning to pre-pandemic norms on almost every front.
Levi's price targets exist in a tight range. The current average target is $28.33 per share, with a high of $36 and a low of $20. With Levi's stock seen trading around $29, there is some downside potential here as the stock approaches the highest price targets.
There hasn't been much recent action for Levi's stock, but the action seen so far has been universally positive. Three days ago, UBS Group reiterated its “buy” rating with a price target of $36 per share, the highest in the field. Before that, the last movement seen around the company was back in April. Four analysts raised their price targets in Levi's, including JPMorgan Chase & Co., Morgan Stanley, Citigroup and Telsey Advisory Group.
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