Levi Strauss Stock Up 4% Today – Time to Buy LEVI Stock?

The price of Levi Strauss stock is surging 4% today following the release of the company’s financial report covering the second quarter of 2021, with the popular denim brand reporting revenues and earnings that exceeded the market’s estimates for the period while the management also raised its guidance for the third quarter of 2021.

Levi Strauss sales landed at $1.3 billion during the three months ended on 30 May, resulting in a 156% jump compared to a year ago while the firm exceeded the consensus estimate for the quarter by $70 million according to data compiled by Seeking Alpha.

Gross margins came in at 58.8% for Levi, this being the highest top-line profitability ratio on record for the business. Meanwhile, Levi increased its dividend distribution for the third quarter of the year by 33% to $0.08.

Levi’s net profits ended the period at $65 million, resulting in a $429 million improvement compared to a year ago, while adjusted diluted earnings per share landed at $0.23 compared to minus $0.91 the firm reported a year ago. Analysts were expecting to see Levi’s non-GAAP EPS landing at $0.09 per share for this quarter.

Are these results positive enough to justify buying Levi Strauss stock at its current price? The following article takes a closer look at the technical setup of Levi Strauss stock along with analyzing the company’s fundamentals to provide a plausible answer to that question.

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Levi Strauss stock – technical analysis

The price of Levi Strauss stock has been trading within an ascending price channel since September last year, with the price moving from $11.5 per share to as much as $29 per share this morning.

This price channel has been broken on two occasions and both resulted in failed breaks, one to the upside (a bull trap) and the other to the downside (a bear trap).

However, this quarterly report shows an improvement in the firm’s fundamentals and growth prospects, which means that the stock could continue to surge on the back of the positive momentum prompted by this upbeat report.

Based on the continuation of the current trend, it would be plausible to expect that the share price will continue to rise to once again tag the upper bound of the price channel at around $32 per share for a 10.3% upside potential.

Meanwhile, if the fundamentals allow it and market participants get excited enough about this quarter’s results, a break above this threshold could result in a whole new bullish cycle for Levi Strauss shares – a situation that could lead the stock to post fresh all-time highs in the following weeks.

Levi Strauss stock – fundamental analysis

Data from TradingView shows that Levi Strauss sales had been growing somehow erratically before the pandemic stroked, surging 14% in 2018 while moving 4% higher in 2019. Meanwhile, sales declined 23% last year as the virus crisis forced the company to shut down many of its physical stores, with top-line results landing at $4.5 billion by the end of 2020.

Today, the management decided to raise its guidance for the second quarter of the year, now expecting to see sales jumping by 29% compared to the same quarter a year ago while landing around 5% above the firm’s 2019 figure.

Interestingly, this quarter’s revenues were nearly the same as those reported by Levi Strauss during the second quarter of 2019. Therefore, for the full-year 2021, we could expect to see a 5% to 10% revenue jump in Levi sales compared to 2019, which would result in a best-case scenario of $6.34 billion for Levi’s 2021 sales.

By the end of this second quarter, Levi’s long-term debt stood at $2.1 billion while the firm ended the period with $1.31 billion in cash and equivalents. This results in a net debt of $800 million that translates into a net debt-to-EBITDA ratio of 1.15 based on an estimated EBITDA margin of 11% for this year – in line with historical estimates.

Meanwhile, at a market capitalization of $11.2 billion, Levi is being valued at 2 times its forecasted sales for 2021, 16 times its EBITDA, and 35 times its estimated EPS for 2021 based on a 5% net margin.

Those multiples are a bit high considering that Levi Strauss will not be displaying the kind of bottom-line growth that one would like to see for a firm that is being valued at 35 times its forecasted net earnings.

Therefore, even though the short-term outlook is bullish for Levi Strauss, the long-term outlook is not that promising.

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