Levi Strauss: A Backside is in for Regular, Secure Dividend Payer

Levi Strauss’s NYSE: LEVI value motion is down greater than 50% from the 2021 highs by way of no fault. The increase in pricing and subsequent correction resulted from the pandemic bubble, a bubble that had little affect on the underlying enterprise. The takeaway from the Q3 launch is that this enterprise is as regular and secure as they arrive, money is flowing, and it’s organising for the following financial upswing, each time which will come.

Which means the dividend stays secure and buying and selling at solely 12X its earnings outlook; it presents a price for buyers. The inventory yields about 3.7%, buying and selling close to the multi-year low with little motive to concern.

Levi’s Pulls Again on Strong Outcomes 

Levi Strauss’s Q3 outcomes are inadequate to catalyze a rally now however point out regular, secure enterprise and enterprise above the pre-COVID interval. The corporate’s $1.51 billion in income is down YOY and missed the consensus estimate, however the decline of -0.7% is offset by the two, 3, and 4-year comps, and the miss is slim. Income fell quick by $40 million or about 250 foundation factors however is up 0.6% in comparison with 2021, 42% in comparison with 2020, and 4% in comparison with 2019. 

DTC led segmentally, with comp retailer gross sales and digital contributing to the 14% acquire. That was compounded by a 12% enhance in Different (together with Dockers) and offset by an 8% decline in Wholesale. 

The margin information can also be tepid however in line with the comps. The corporate reported a decline in gross and adjusted margins attributed to deleveraging, acquisition-related bills, and elevated SG&A that minimize into the YOY comps. Nevertheless, the $0.28 adjusted earnings align with the vary set in prior years, so the decline and $0.01 miss aren’t alarming. The salient level is that money from ops and adjusted earnings can maintain enterprise and dividend funds. 

The underside line is that enterprise has rebounded solidly from the pandemic lows and is stabilizing with a mid-single-digit acquire in comparison with 2019. The value motion is down practically 30% in comparison with 2019, suggesting a deeply oversold situation out there. 

The Promote-Aspect is Shopping for Levi’s

Levi’s analysts have been blended of their protection this yr, however the information takeaway is bullish. The consensus score of 10 analysts trended increased to Average Purchase in comparison with final yr’s Maintain, and the worth goal suggests nothing however an upside for this market. The analysts’ low value goal, among the many most just lately set and coming from 2 corporations, is $14 and seven.5% above the post-release value motion. The consensus goal, which aligns with lots of the freshest targets, assumes one other 7.5% to fifteen% on high of the low goal. 

The establishments compound that exercise. The establishments personal about 28% of the inventory and have purchased on steadiness for five consecutive quarters. That is in line with the bottoming motion that started in spring 2022. If the establishments proceed to purchase, the underside is probably going in for this market or will quickly be discovered. 

The Technical Outlook: Levi’s Buying and selling at Essential Ranges

The bottoming motion in Levi’s is compounded by the 2023 value motion, which exhibits a ground close to $13. The value motion is close to that stage following the Q3 launch, however bottom-fishing is already current. Worth motion firmed from its lows, suggesting assist continues to be current at this stage. If the market follows by way of on the sign, shares of the inventory ought to proceed to pattern sideways in This fall. If not, shares of Levi Strauss might fall beneath $13 and retest assist ranges set in 2020. 

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