Levi Strauss Stock Down 5% – Time to Buy LEVI Stock?

The price of Levi Strauss stock dropped 5% yesterday following the release of the firm’s financial results covering the third quarter of its 2021 fiscal year despite beating Wall Street’s estimates for both revenues and earnings.

Sales of the California-based apparel manufacturer landed at $1.5 billion resulting in a 41% jump compared to the same period a year ago while they were also 18% higher than the top-line results reported the previous quarter. Analysts’ estimates according to data from Refinitiv for the period were $1.48 billion.

Meanwhile, gross margins improved compared to the same quarter a year ago as they landed at 57.6% or 390 basis points higher than Q3 2020. However, they came in 120 basis points lower than the previous quarter. Moreover, the firm’s adjusted operating margin also experienced a significant improvement at 14.8% compared to the 7.9% the firm reported during the same period in 2020.

Finally, adjusted earnings per share for Levi Strauss ended the period at $0.48 for a 500% year-on-year jump while they exceeded analysts’ estimates by 11 cents (30%).

Aside from its financial results, the management also informed that the company’s gross debt went back to pre-pandemic levels upon paying back a total of $200 million in outstanding notes while the Board of Directors approved a $200 million share repurchase program.

Why is LEVI stock dropping despite the upbeat tone of this report and what can be expected from it in the future? In the following article, I’ll analyze the price action and fundamentals of the company to outline plausible scenarios for the fourth quarter of the year.

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Levi Strauss Stock – Technical Analysis

In a previous article about Levi, we highlighted that the company’s positive second-quarter results could possibly push the price toward the $32 mark and even though the price action got close it seems that sentiment shifted at some point as the price of Levi Strauss stock started to decline upon reaching an intraday peak of $30 per share.

Now, the price action seems embarked in a consolidation phase that is slightly tilting to the downside. Moreover, yesterday’s downtick pushed the price dangerously near the lower bound of that formation while the stock is trading 4% higher in pre-market action today.

Yesterday’s volumes were quite high as they exceeded the 10-day average by almost 4 times and that is a sign that investors may have seen something they did not like in this earnings report.

At the moment, momentum indicators are not providing a directional signal as the Relative Strength Index (RSI) remains stalled at 37 while the MACD is neck-deep into negative territory on erratic histogram readings.

Moving forward, the outlook would turn full-blown bearish if the price breaks below the support line highlighted in the chart. This view is favored by the fact that the stock price has dipped below the short-term moving averages and that could indicate that LEVI stock is returning to its mean.

Moreover, the price has also broken below the 200-day moving average for the first time since October 2020 and that could be another sign of weakness to keep in mind.

All things considered, the outlook for Levi Strauss stock is bearish at the moment despite the upbeat tone of this latest earnings report unless the price action recovers its lost momentum and the stock climbs above its short-term moving averages in the next few sessions on the back of the implied advance seen in pre-market action this morning.

Levi Strauss Stock – Fundamental Analysis

Levi’s guidance for what remains of the year for both revenues and earnings came in line with Wall Street’s expectations. The company also stated that a higher contribution of direct-to-consumer (DTC) sales to its top-line results are contributing to an improvement in its gross margins.

Meanwhile, Levi did not report any relevant developments on the supply chain front and this shows that the company has navigated the crisis successfully.

Overall, no external factors appear to be disrupting the firm’s outlook as indicated by the management and analysts. Currently, the stock is trading at 17.5 times its forecasted adjusted EPS for the next twelve months.

This conservative multiple, the company’s robust post-pandemic finances, and the positive prospects of the DTC segment possibly becoming a positive catalyst fueling Levi’s future growth make Levi an attractive long-term bet.

That said, since the current technical setup is bearish, investors could wait to see if the price declines further to enter a long position at an even more attractive price.

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