Shares of Levi Strauss (NYSE: LEVI) fell by almost 9% on Wednesday after the company posted better-than-expected but still somewhat disappointing results. While investors responded with fear as shares tumbled in light of the news, Wall Street analysts are surprisingly doubling down on the company’s stock.
In particular, Bank of America analyst Heather Balskry doubled down on her “buy” rating for the company while raising her price target by 10% to $22 per share. Levi Strauss had reported net revenue of $1.45 billion for Q3, which barely inched ahead of the $1.44 consensus estimate held by analysts. Year-over-year sales in its direct-to-consumer business had grown by 12% while it’s wholesale business had grown by just 1% in comparison.
However, looking at the company’s results by geography, Levi’s net revenue in the Americas fell by 3% while its net revenue in Europe jumped an impressive 14%. Its Asian segment also saw a respectively increase in revenue, up 9%. The main financial metric that investors were worried about was its overall adjusted net income including all of its business segments, a figure which fell by 4%.
“The outlook reflects international strength, partly offset by less off-price selling (mostly Dockers) and no 2H sales to its South American distributor ahead of LEVI buying the business,” said Balsky. Another expert, Pete Najarian from CNBC, added that “if you focus on where they are growing I find it pretty impressive. They are up 14% in Europe and 9% in China and we all know they are expanding more in the Women’s category, its something they need to expand, and they are doing it.”
The question comes down to whether Levi Strauss’ decline in the Americas is something to worry about or whether this is overshadowed by growth in the European and Asian markets? Considering that struggling retail brands have been pushing to move towards a direct-to-consumer sales model and cut out the middlemen of retail stores and the like, Levi Strauss’ strong direct-to-consumer sales growth is definitely reassuring. The sheer size of the Asian market also means that it could quite easily surpass the American market as the company continues to grow in this area.
Other major wall street analysts such as Paul Lejuez from Citigroup and Robert Drubl from Guggenheim are also quite upbeat in contrast to regular investors. Both have “buy” ratings for the company, with price targets at $25 and $26 per share respectively. One of the most optimistic experts is Dana Telsey from Telsey Advisory Group, who has an “outperform” rating on the company with an aggressive $28 target price.
Overall, it seems that Levi might not have as much to worry about as some of its detractors would have investors believe. While retail stores have undoubtedly been struggling, Levi Strauss appears to be transitioning well to alternative distribution models. Time will tell whether regular investors will end up agreeing with Wall Street’s assessment.
Levi Strauss Company Profile
Levi Strauss & Co is involved in designing, marketing and selling products that include jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories for men, women and children under Levi’s, Dockers, Signature by Levi Strauss & Co. and Denizen brands. – Warrior Trading News