Investing

Earnings Preview: Levi Strauss

This has been a slow week for earnings reports, with just one stock of note, Levi Strauss & Co. (NYSE: LEVI), reporting results after markets close Thursday.

The latest report on new and continuing claims for unemployment benefits came in about as expected, but the news that lifted equity prices is that new claims rose to their highest level in six months, signaling that more layoffs (or less hiring) may be on the way and easing traders’ recession worries.

Before U.S. markets open on Friday, the U.S. Department of Labor will release its monthly report on nonfarm payrolls for June. Economists are expecting an addition of 250,000 new jobs, down from 390,000 in May. The headline unemployment rate is forecast to remain at 3.6%, and average hourly earnings are pegged to rise by 0.3% in the month, the same as the May increase.

As for apparel maker Levi Strauss, its shares have retreated more than 43% over the past 12 months. Virtually the entire decline has occurred since late November, despite it beating analysts’ earnings and revenue estimates in each of the prior six quarters. For the 2021 fiscal year that ended in November, the company reported a year-over-year revenue increase of 42.3% and an earnings per share (EPS) increase of more than 1,000%. Early in March, the company stopped doing business in Russia, where about 4% of its 2021 revenue came from.

Analysts are bullish on the stock, with all 13 surveyed rating the shares at Buy or Strong Buy. The median price target of $27.00 is about $11 higher than the trading price, implying a potential upside of 68.8%. At the high price target of $40, the implied upside is 150%. Free cash flow over the past 12 months totaled $550.4 million, and free cash flow per share came in at $1.36.

For the second quarter of fiscal 2022, analysts are forecasting sales of $1.43 billion, which would be down 10% sequentially but 11.7% higher year over year, and adjusted EPS of $0.23, down 49.9% sequentially and flat year over year. For the full fiscal year, analysts currently expect EPS of $1.54, up 5%, on sales of $6.43 billion, up 11.6%.

The stock trades at 10.3 times expected 2022 EPS, 9.3 times estimated 2023 earnings of $1.72 and 8.2 times estimated 2024 earnings of $1.95 per share. The stock’s 52-week trading range is $15.62 to $30.09. Levi Strauss pays an annual dividend of $0.32 (yield of 2.52%). Total shareholder return for the past year is negative 42.5%.

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