Back to top

Image: Bigstock

Buy Cheap Retail Stock Levi Before Q1 Earnings?

Read MoreHide Full Article

Levi Strauss & Co. (LEVI - Free Report) is a fashion icon, famous for its jeans. The company returned to the public markets in 2019 and its stock soared 140% in the past year to crush Nike (NKE - Free Report) , Lululemon (LULU - Free Report) , and others. Levi owns others brands and Wall Street has been pleased with its initiatives in a changing retail and fashion landscape.

The company is set to report its first quarter fiscal 2021 financial results on Thursday, April 8, and some of Levi’s fundamentals might make it an enticing buy.

Denim & Beyond

Levi is a global fashion brand, with various offerings for men, women, and kids found in chain retailers, department stores, online sites, and a global footprint of approximately 3,100 retail stores and shop-in-shops. Beyond its namesake clothing brand, Levi owns Dockers, Denizen, and others. The company pulled in $4.45 billion in 2020 sales, which marked a 23% downturn, driven by coronavirus setbacks.

Luckily, Levi’s sales improved as economies reopened, with its Q4 revenue down just 12% vs. its 62% decline in the second quarter. Like many retailers, the company spent much of the last year improving its digital businesses, with its fourth quarter e-commerce revenue up 38% to account for 23% of total sales, up from 15% in the year-ago period.

Despite the setbacks, Levi has topped our adjusted earnings estimates in the trailing four quarters, including huge beats in Q3 and Q4. The iconic jeans maker is also focused on diversifying beyond denim pants, especially amid changing fashion habits and the rise of Lululemon and athleisure. “In 2015, our tops business represented 11% of our total business. In 2020, it was 21% of revenues,” CEO Chip Bergh said on the company’s Q4 earnings call.

“Another 16% of our 2020 revenues was from other categories that are not denim bottoms such as accessories, footwear and chinos. Over the next decade, as we drive outsized growth in tops and these other categories, we expect half our revenues will come from products that are not denim bottoms.”

Levi’s push to expand its reach and diversify comes as malls and traditional department stores such as Macy’s (M - Free Report) struggle in the Amazon (AMZN - Free Report) and digital shopping age. This includes a beefed-up partnership with Target (TGT - Free Report) that features its recently-launched lifestyle collection that ranges from home goods to and pet supplies.

Other Fundamentals

As we mentioned up top, Levi stock has climbed 140% in the past year. The run has helped lift it above its IPO levels, with it now up around 8% since its debut in March 2019. Levi has continued its strong performance in 2021, up 20% to top the S&P 500’s 6% climb. And at around $23.96 a share, the stock is not only low-priced, it’s trading at a 7% discount to its mid-March highs.

Meanwhile, Levi rests at neutral levels in terms of RSI and it has consistently traded at a discount to its industry in terms of both forward earnings and sales. And the company announced last quarter that it reinstated its dividends, as the economy returns to normal following coronavirus setbacks.

Looking ahead, Zacks estimates call for Levi’s fiscal 2021 revenue to climb 22% to reach $5.43 billion, with FY22 set to jump another 8% to come in at $5.86 billion and top FY19’s levels. At the bottom end, its adjusted earnings are projected to skyrocket 362% to $0.97 a share, with fiscal 2022 expected to climb all the way to $1.25 a share.

Bottom Line

Levi currently lands a Zacks Rank #3 (Hold), alongside a “B” grade for Growth in our Style Scores system. Plus, four of the five brokerage recommendations Zacks has for Levi are “Strong Buys,” with the other at a “Buy.” Therefore, investors might want to consider buying Levi as a longer-term play.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.

Click here for the 4 trades >>