On Thursday, Morgan Stanley (NYSE:MS) adjusted its outlook on Levi Strauss & Co. (NYSE:LEVI), reducing the price target to $19 from the previous $20, while maintaining an Equal-weight rating on the shares. The decision came after the apparel company's recent financial performance, where revenue did not meet expectations but was balanced by strong profit margins, leading to a slight outperformance in earnings per share (EPS).
The firm noted that the adjustment in Levi Strauss's stock valuation reflects the market's reaction to the company's revenue challenges and a lack of immediate growth drivers. Concerns were also raised regarding short-term sales risks and the possibility of negative mid-term estimate revisions, which contributed to the decision to maintain the Equal-weight rating.
Morgan Stanley's commentary highlighted the company's resilience in maintaining profitability despite the revenue shortfall. The analyst stated that the strong margins helped Levi Strauss beat EPS expectations marginally. This performance indicates that while the company faces headwinds in sales, it is managing to control costs effectively.
The market's response to Levi Strauss's earnings report has been factored into the new price target. The analyst pointed out that the post-earnings de-rating of the stock seems to have already accounted for the current challenges in top-line growth and the limited catalysts for near-term improvement.
In summary, Morgan Stanley's revised price target for Levi Strauss reflects a cautious outlook on the company's ability to increase sales in the near term. While the firm recognized the company's capacity to manage margins and deliver on profitability, it also acknowledged the potential headwinds that could affect future earnings estimates.
In other recent news, Levi Strauss & Co. has been navigating a series of significant developments. The company recently disclosed plans to reroute shipments through West Coast ports due to an ongoing dockworker strike, utilizing air freight to ensure timely delivery of products. TD Cowen, in light of Levi's latest earnings report, reduced the price target from $25.00 to $23.00 but maintained a Buy rating on the stock. The report indicated a slight earnings per share beat but a revenue shortfall compared to market expectations.
Levi Strauss also announced the potential sale of its Dockers brand following a 15% decline in Dockers' sales in the third quarter. This decision is seen as part of its strategy to focus on core denim products. The company is also contemplating a subdued revenue outlook for the upcoming holiday quarter due to a reduction in consumer spending and lower demand from retailers.
In its third-quarter fiscal 2024 earnings call, Levi Strauss reported a 2% increase in net revenues and a notable 5% global growth for the Levi's brand. The company also highlighted record Q3 gross margins of 60% and a significant expansion in adjusted EBIT margin.
InvestingPro Insights
While Morgan Stanley has adjusted its outlook on Levi Strauss & Co. (NYSE:LEVI), recent data from InvestingPro provides additional context to the company's financial position. Despite the revenue challenges noted in the article, LEVI's stock has shown remarkable resilience, with a 64.16% total return over the past year. This performance aligns with an InvestingPro Tip indicating that LEVI has delivered a high return over the last year.
The company's dividend policy also remains strong, with InvestingPro data showing a current dividend yield of 2.47% and a dividend growth of 8.33% in the last twelve months. An InvestingPro Tip highlights that LEVI has raised its dividend for 5 consecutive years, demonstrating a commitment to shareholder returns even in challenging times.
While Morgan Stanley's analysis focuses on short-term sales risks, it's worth noting that LEVI's revenue for the last twelve months stands at $6.15 billion, with a slight growth of 0.33%. The company's ability to maintain profitability is reflected in its gross profit margin of 57.99% for the same period.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for LEVI, providing deeper insights into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.