Analyst Oliver Chen of research firm TD Cowen lifted the price target on Levi Strauss & Co. (NYSE:LEVI) to a Street High and placed the stock under the Best SMIDCAP (small and mid-cap) Ideas list. Chen has a Buy rating on LEVI stock, as he believes that the company is poised to become a global denim leader, led by accelerated use of denim clothing. Chen raised the price target to $26 from $23, implying 10.5% upside potential from current levels.
Levi Strauss is a popular multinational denim company and one of the first companies to design and manufacture jeans. In the past year, LEVI shares have gained over 44%.
Levi’s has consistently exceeded analysts’ expectations for adjusted earnings per share (EPS) in the past eight quarters. The company is scheduled to report its Q2 FY24 results on June 26, after the market closes. The Street expects Levi’s to post adjusted EPS of $0.11 on revenue of $1.45 billion.
Chen Highlights 3 Factors for His Bullish Thesis
Chen is highly optimistic about Levi’s long-term growth potential. He mentioned three factors that support his bullish thesis on the stock. Firstly, the analyst highlighted that Levi’s is the number one denim wear manufacturer in the world and continues to capture higher market share, fueled by persistent “denim and Western cycle momentum.”
Secondly, Chen noted that Levi’s has strengthened its footprint in the direct-to-consumer (DTC) market. He expects product innovation in the second half of 2024 to drive continued growth and higher margins.
Finally, the analyst is hopeful that Levi’s will be able to outperform its conservative FY24 guidance on the heels of its solid DTC market share and improving trends in the U.S. and European wholesale markets.
Chen is also encouraged by Levi’s healthy 4.2% FCF (free cash flow) yield, above sector-average dividend yield of 2.1%, and a low leverage ratio of 0.7x, as of Q1 FY24. Notably, Levi Strauss pays a regular quarterly dividend of $0.12 per share and undertakes regular share buybacks to reward shareholders. As of February 25, 2024, Levi’s had $656 million outstanding under its current share repurchase plan.
Is Levi Stock a Good Buy?
Interestingly, not all analysts share the same optimism for Levi’s stock as Chen. On TipRanks, LEVI stock has a Moderate Buy consensus rating based on six Buys versus six Hold ratings. The average Levi Strass & Co price target of $22.27 implies 5.4% downside potential from current levels.
Key Takeaways
As per Chen’s expectations, Levi’s is set to outperform its Fiscal 2024 outlook. Levi’s confidence in improving its profit margins, the expected ramp in sales from the tech pants in the second half of the year, and greater penetration in the U.S. and Europe could act as catalysts for the company’s growth story going forward.
