Levi Strauss (NYSE:LEVI) Looks Reasonably Valued after Strong Third Quarter Earnings

Shares of Levi Strauss & Co. (NYSE:LEVI) traded as much as 10% higher on Thursday after the company posted a strong set of results for the third quarter. The results showed significant improvements in the company’s fundamentals, particularly when rising inflation and supply chain issues are considered.

Highlights from the company’s earnings release included:

• GAAP EPS of $0.47 were $0.12 ahead of consensus estimates.
• Revenue of $1.5 billion, was $20 million ahead of estimates, and up 41.5% for the year.
• Gross and operating margins were up significantly from a year ago.
• Fourth quarter and full year guidance were lifted. Full year adjusted diluted EPS are expected to be between $1.43 and $1.45, up $0.12 from where full year guidance was three months ago.

The company has also announced a share buyback program worth $200 million. This equates to about 2% of outstanding shares and nearly 5% of shares not held by company insiders.

See our latest analysis for Levi Strauss

Levi’s Valuation

NYSE:LEVI Price Based on Past Earnings October 7th 2021

With a price-to-earnings (or "P/E") ratio of 33.5x, Levi’s is trading on a significantly higher multiple than the average US stocks which trades on a 17X P/E. This is not surprising as the company is expected to grow earnings at 20% over the next few years versus 15% for the broader market. These growth expectations may also rise on the back of the latest set of results.

Our rough estimation of the stock’s intrinsic value is $24.92, implying the stock is fairly valued at present. This estimate is calculated using a 2-stage cash flow to equity model, and is based on earnings forecasts from five analysts. The estimate is therefore sensitive to changes in earnings forecasts and the discount rate.

Keen to find out how analysts think Levi Strauss' future stacks up against the industry? In that case, our free report is a great place to start.

The Bottom Line

The share appears to be quite reasonably valued, though we would not say it is cheap. However, expectations may well rise on the back of the latest results and the higher guidance. The share buyback could also provide support to the share price.

There are several other issues that investors should also be aware of concerning Levi Strauss:

• Levi Strauss & Co.'s shares are tightly held by insiders, particularly members of the Haas family who owned the company before its 2019 IPO. Insiders own 54% of the shares, which means they can collectively make decisions for the company that may affect minority shareholders. You can keep track of the ownership structure of Levi Strauss here.
• The company has a high level of debt and a debt-to-equity ratio of 0.88%. The total debt has been reduced over the last 12 months and is well covered by operating cash flow - nevertheless this is something to keep an eye on.
• Dividend payments have been erratic since the company became public, mostly due to the debt burden and a steep drop in revenue in 2020. View the dividend history here.

You might be able to find a better investment than Levi Strauss. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

What are the risks and opportunities for Levi Strauss?

NYSE:LEVI

Levi Strauss

Levi Strauss & Co. engages in the design, marketing, and sale of apparels and related accessories for men, women, and children in the Americas, Europe, and Asia.Show more

View Full Analysis

Rewards

• Trading at 10.3% below our estimate of its fair value

• Earnings are forecast to grow 10.64% per year

• Earnings have grown 13.4% per year over the past 5 years

Risks

• High level of non-cash earnings

• Significant insider selling over the past 3 months

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report

Further research on
Levi Strauss

ValuationFinancial HealthInsider TradingManagement Team

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.