Levi Strauss & Co. (LEVI) in San Francisco is one of the world's leading brand-name apparel corporations and a global leader in jeans wear. Under Levi's Signature by Levi Strauss & Co.TM, Denizen, Dockers, and Beyond Yoga brands, the firm designs and promotes jeans, casual clothing, and associated accessories for men, women, and children.
LEVI is redoubling its digital transformation efforts while leveraging the brand's 169-year legacy to achieve key category growth. Its shares have gained 2.9% in price over the past month, closing yesterday's trading session at $18.75.
While the company is still recovering from pandemic-led disruptions, it has reaffirmed its fiscal 2022 projections, predicting net revenue growth of 11%-13% for its fiscal year 2021, with a range of $6.4 billion - $6.5 billion.
Here is what could shape LEVI's performance in the near term:
Expansion Strategy
This month, LEVI announced ambitious plans to accelerate sustainable company growth and commercial success in the East Asia Pacific (EAP) region. Diversifying the business across locations, clothing categories, and distribution channels is fundamental to the growth plan. Levi Strauss & Co. will open new shops throughout the area, refurbish existing locations, and provide innovative in-store services.
Robust Financials
During its first fiscal quarter ended February 27, 2022, LEVI's net revenue increased 21.9% year-over-year to $1.59 billion. Its operating income increased 32.2% year-over-year to $234.23 million. The company's net income grew 37.4% from the year-ago value to $195.84 million, while its EPS grew 37.1% from the prior-year quarter to $0.48.
Strong Profitability
LEVI's 10% trailing-12-months net income margin is 53.1% higher than the 6.6% industry average. Also, its ROC, gross profit margin, and ROA are 42.3%, 60.3%, and 72.5%, respectively, are higher than the industry averages. Furthermore, its $753.92 million in cash from operations is 372.8% higher than the $159.46 million industry average.
Impressive Growth Prospects
The Street expects LEVI's revenues and EPS to rise 11.8% and 5.4%, respectively, year-over-year to $6.45 billion and $1.55 in its fiscal 2022. In addition, LEVI's EPS is expected to rise at a 9.3% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.
Consensus Rating and Price Target Indicate Potential Upside
Each of the 10 Wall Street analysts who rated LEVI rated it Buy. The 12-month median price target of $30.40 indicates a 62.1% potential upside. The price targets range from a low of $25.00 to a high of $40.00.
POWR Ratings Reflect Solid Prospects
LEVI has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. LEVI has a B grade for Quality and Growth. LEVI's solid earnings and revenue growth potential are consistent with the Quality and Growth grades.
In the Consumer Goods industry, LEVI is ranked #4.
Beyond what I stated above, we have also graded LEVI for Sentiment, Stability, Value, and Momentum. Get all LEVI ratings here.
Bottom Line
LEVI has exhibited better-than-expected financial performance in its last reported quarter and is on track to deliver solid growth in the coming months based on its aggressive growth strategies. In addition, given the favorable analysts' targets and the company's impressive profitability, the stock could soar in price in the coming months. So, we think the stock could be a great bet now.
How Does Levi Strauss & Co. (LEVI) Stack Up Against its Peers?
LEVI has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: Mannatech, Incorporated (MTEX) and Societe BIC SA (BICEY).
LEVI shares were unchanged in premarket trading Wednesday. Year-to-date, LEVI has declined -24.76%, versus a -7.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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