Levi Strauss’s share price jumped 4% today following the release of the financial report covering the second quarter of 2021, with the popular denim brand reporting revenue and profits that exceeded market estimates for the period while management also raised its guidance for the third quarter of 2021.
Levi Strauss’ sales reached $ 1.3 billion in the three months ended May 30, a 156% jump from a year ago, while the company topped $ 70 million l ‘consensus estimate for the quarter, according to data compiled by Seeking Alpha.
Gross margins stood at 58.8% for Levi, which represents the highest profitability ratio on record for the company. Meanwhile, Levi increased his dividend payout for the third quarter of the year by 33% to $ 0.08.
Levi’s net earnings ended the period at $ 65 million, an improvement of $ 429 million from a year ago, while adjusted diluted earnings per share reached $ 0.23, from minus 0 , $ 91 announced by the company a year ago. Analysts expected Levi’s non-GAAP EPS to hit $ 0.09 per share for this quarter.
Are these results positive enough to justify buying Levi Strauss shares at its current price? The following article takes a closer look at the technical setup of Levi Strauss’ stocks and analyzes the fundamentals of the company to provide a plausible answer to this question.
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Levi Strauss share – technical analysis
The Levi Strauss share price has been trading in an ascending price channel since September of last year, with the price rising from $ 11.5 per share to $ 29 per share this morning.
This price channel was broken twice and both resulted in failed breakouts, one on the upside (a bull trap) and the other on the downside (a bear trap).
However, this quarterly report shows improving fundamentals and growth prospects for the company, which means the stock could continue to climb thanks to the positive momentum generated by this bullish report.
Based on the continuation of the current trend, it would be plausible to expect the share price to continue rising to once again hit the upper limit of the price channel at around $ 32 per share for a upside potential of 10.3%.
Meanwhile, if fundamentals allow and market participants are sufficiently excited about this quarter’s results, a break above that threshold could trigger a whole new bull cycle for Levi Strauss shares – a situation that could drive the action to show new historic highs. in the following weeks.
Levi Strauss Stock – Fundamental Analysis
TradingView data shows Levi Strauss’s sales had grown erratically before the pandemic, increasing 14% in 2018 while increasing 4% in 2019. Meanwhile, sales fell 23% last year as the crisis viral has forced the company to close many of its stores, with blue chip results reaching $ 4.5 billion by the end of 2020.
Today, management has decided to raise its guidance for the second quarter of the year, now expecting sales to jump 29% from the same quarter a year ago, while hitting around 5%. above the company’s 2019 figure.
Interestingly, this quarter’s revenue was almost the same as Levi Strauss reported in the second quarter of 2019. Therefore, for the full year 2021, we would expect a revenue increase of 5 at 10% of Levi’s sales from 2019, which would translate to a best-case scenario of $ 6.34 billion for Levi’s 2021 sales.
At the end of this second quarter, Levi’s long-term debt stood at $ 2.1 billion while the company ended the period with $ 1.31 billion in cash and cash equivalents. This translates into net debt of $ 800 million which translates into a net debt to EBITDA ratio of 1.15 based on an estimated EBITDA margin of 11% for this year, in line with historical estimates.
Meanwhile, with a market cap of $ 11.2 billion, Levi is valued at twice his expected sales for 2021, 16 times his EBITDA and 35 times his estimated EPS for 2021 based on a net margin of 5. %.
Those multiples are a bit high considering that Levi Strauss won’t show the kind of bottom line growth one would like to see for a company valued at 35 times its expected net earnings.
Therefore, while the short-term outlook is bullish for Levi Strauss, the long-term outlook is not that bright.