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Levi Strauss’s NYSE: LEVI price has experienced a decline of over 50% from its 2021 highs, but this is not due to any fault on the company’s part. The drop in price was a result of the pandemic bubble and subsequent correction, which had little impact on the underlying business. The company’s Q3 release indicates that its business is stable and steady, with cash flowing smoothly. This positions Levi Strauss well for the next economic upswing, whenever that may occur. As a result, the dividend remains safe and the stock is trading at a value for investors, with a dividend yield of about 3.7% and a low trading price.
Levi’s Pulls Back on Solid Results
Levi Strauss’s Q3 results, although not enough to trigger a rally, demonstrate a steady and stable business that is performing above pre-COVID levels. While the company’s revenue of $1.51 billion is down year-over-year and missed the consensus estimate, the decline of -0.7% is offset by favorable comparisons to the previous 2, 3, and 4-year periods. Additionally, revenue is up compared to 2021, 2020, and 2019. The Direct-to-Consumer (DTC) segment led the way, with comp store sales and digital channels contributing to a 14% gain. This was partially offset by an 8% decline in Wholesale sales. Despite a decline in gross and adjusted margins, the company’s cash from operations and adjusted earnings support its business and dividend payments.
The market has oversold Levi Strauss, with its price action down nearly 30% compared to 2019. However, business has rebounded solidly from the pandemic lows and is now stabilizing with a mid-single-digit gain compared to 2019.
The Sell-Side is Buying Levi’s
Levi Strauss has garnered mixed coverage from analysts this year, but overall, the consensus rating has trended higher to Moderate Buy from Hold. The price target also suggests upside potential for the stock. Even the lowest price target, set by two firms, is 7.5% higher than the current price, while the consensus target assumes a further 7.5% to 15% increase.
Institutions have been buying Levi Strauss stock consistently for five quarters, owning about 28% of the shares. This aligns with the bottoming action observed since spring 2022. If institutions continue to purchase shares, it is likely that the market has reached or will soon find its bottom.
The Technical Outlook: Levi’s Trading at Critical Levels
The technical outlook for Levi Strauss indicates a potential bottoming action, supported by the 2023 price action, which suggests a floor near $13. Although the stock price has declined following the Q3 release, it has stabilized at this level, indicating ongoing support. If the market confirms this signal, the stock should continue to trend sideways in Q4. However, if not, there is a possibility that Levi Strauss shares could fall below $13 and test support levels established in 2020.
