Analysts Are Leading Levi Strauss Higher

Levi Strauss Is A Post-Pandemic Winner

Levi Strauss (NYSE:LEVI) did not have a great year despite the strong rebound that is already underway. The company saw its revenues decline more than 60% in the 2nd quarter of the year and they have yet to regain the pre-COVID levels. And yet the analysts continue to warm up to this stock. Not because it is such a pandemic winner, it certainly isn’t that, but because it is set up to win in the post-pandemic world. The company has a great brand with global recognition, it’s making big strides into the eCommerce/direct-to-consumer arena, and the brick&mortar locations that it relies on are on the brink of a major, vaccine-supported reopening.

eCommerce Underpinning Results For Levi

eCommerce is not only helping Levi Strauss recapture lost revenue but it is juicing the bottom line as well. On a net basis, eCommerce sales improved 52% YOY in the 3rd quarter and drove a 60 basis point improvement in gross margin. This is important to note because many retailers/manufacturers relying on eCommerce have seen their margins squeezed by higher costs in the DTC channels. The takeaway is that eCommerce will not only aid growth as the company moves forward but that it will also leverage earnings.

CFO update, Q3 earnings report "The strength of the Levi’s brand is demonstrated in our gross margins, and revenues have been recovering from COVID-19 related disruptions faster than expected, driven by e-commerce, international and our women’s business, particularly within Europe and in the United States. Inventory is healthy headed into holiday, we are making investments in our digital transformation, and our cost and working capital actions have put us on a clear and accelerated path to achieving our adjusted EBIT margin 'North Star' of at least 12% when revenues recover to pre-COVID levels."

The Analysts Like What They See In Levi’s

The analysts like what they see in Levi’s despite the impact of the pandemic. Over the last 180 days the company has turned the few analysts sitting on the fence into bulls and they are driving the shares higher. The consensus target for Levi’s has risen $2.00 or more than 10% and this trend is not over. Guggenheim is only the latest bull to issue a price target increase and that a stout $4.00 to $24 or about 26% upside. Since the 2Q report was issued the stock has gotten 7 nods from the analyst community include 3 upgrades and 7 price target hikes.

The most impactful upgrade came from Goldman Sachs. The analysts at Goldman Sachs switched from bear to bull raising the rating from sell to buy and setting a target of $23. According to them, Levi’s is delivering on several initiatives including the DTC channels that promise to drive increased sales, higher margins, and EPS growth. The analysts at Bank of America echo that sentiment calling out the stock as an underappreciated COVID-recovery story with underlying brand strength.

The Technical Outlook: Levi’s Broke Out, New Highs Are In Store

Shares of Levi’s made a stunning recovery led by the analysts and their upgrades. The stock gained nearly 85% before hitting its peak and has since retreated back to a firmer level of support. Now, with the analyst’s sentiment coming to a boil, the stock looks like it could retest the recent high if not set new highs very soon. In the near-term, price action may continue to falter and/or test support near the 30-day EMA. The indicators are bearish and suggest price weakness will continue. That said, so long as the price action remains above the EMA the uptrend is intact and falling indicators a good thing.