Bear of the Day: Levi Strauss (LEVI)
Levi Strauss (LEVI) is a Zacks Rank #5 (Strong Sell) that designs, markets, and sells apparel and related accessories for men, women, and children worldwide. Levi's products are sold through chain retailers, department stores, online sites, brand-dedicated retail stores, and shop-in-shops.
The company recently reported an earnings beat, which has helped the stock rally about 6% since. However, since earnings analysts have been taking their estimates lower, spelling trouble for the company in the year ahead.
About the Company
Levi Strauss is a popular brand name that was founded way back in 1853. The company is headquartered in San Francisco, CA, and employs over 19,000.
LEVI isvalued at $6.5 billion and has a Forward PE of 13. The stock holds Zacks Style Scores of “A” in Growth, but “F” in Momentum. The company pays a dividend of 3%.
Q4 Earnings
LEVI reported a 5% EPS beat but missed on revenues. The company always beats the number as they have not seen a miss since the IPO back in 2019.
The bad news was the guide of FY24 was below consensus, coming in at a range of $1.15-1.25 versus the $1.31 expected. The company sees net revenues up 1-3% v the 5.3% expected.
The good news came in higher margins, lower inventories, and a reduction to the corporate workforce of 10-15%.
The stock went lower on the guide down but turned higher on the company's attempt to control costs. Additionally, new CEO Michelle Gass will take over the leadership role.
Some investors have hopes that new leadership and cost control will help the bottom line, but for now, estimates do not look favorable for a higher stock price.
Earnings Estimates
Over the last 7 days, analysts have been lowering estimates across the board. For the current quarter, numbers have dropped from $0.41 to $0.23, or 44%. For the next quarter, estimates have fallen 26%, going from $0.15 to $0.11 over that same time frame.
Looking at next year, estimates have the same trend lower. Over the last 7 days, numbers have fallen to $1.42 from $1.53, a move lower of 7%.
As these estimates have been trending down, the stock has as well, off almost 50% from the 2021 highs.
Technical Take
In 2019 the LEVI IPO was sold quickly. The stock went from $23 to $16 and when COVID hit, the stock fell to $10. But from there, the stock tripled, reaching post-IPO highs above $30.
Since that high, the stock has been in a slow bleed motion down, falling to $12.50, not too far from those post-COVID lows.
The earnings move higher helps the look of the chart. It is over both the 50-day and 200-day moving averages. The $17-18 range seems to be a strong area of resistance and if the 50-day were to break at $16, the stock would like to fall to that 200-day MA area at $14.50.
Value and dividend investors likely look to support the stock, but another disappointing quarter in April might bring more selling pressure.
Investors might want to take some profits and reconsider at lower levels.
In Summary
While management is shaking things up with new leadership and cost-saving measures, investors might want to take some profits and reconsider at lower levels. With earnings estimates on a clear downward trend, the stock could be dead money in the short term.
For those interested in the space, a better option might be The Gap (GPS). The stock is a Zacks Rank #1 (Strong Buy) that flipped its earnings momentum over the last three months.
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Levi Strauss & Co. (LEVI) : Free Stock Analysis Report
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