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Levi Strauss: A Reliable Source of Steady Dividend Payments

Levi Strauss shares have experienced a pullback following the release of the Q3 results and guidance update. However, there are indications that this might be the bottom of the market.

The stock pays a solid dividend yield of 3.7% and the company’s business is stabilizing above 2019 levels.

The direct-to-consumer (DTC) and digital channels continue to perform well for top brands like Levi Strauss.

Although Levi Strauss’s stock price has decreased by more than 50% from its 2021 highs, this can be attributed to the pandemic bubble and subsequent correction, which had little impact on the underlying business. The Q3 release indicates that the company’s business remains steady and stable, with cash flow and potential for the next economic upswing.

This means that the dividend payments remain secure and the stock is trading at a low multiple of 12 times its earnings outlook, making it a value for investors. With a yield of about 3.7%, the stock is trading near a multi-year low and investors have little reason to be concerned.

The Q3 results for Levi Strauss are not enough to trigger a rally at the moment, but they show a steady and stable business that is performing well compared to the pre-COVID period. While the company’s revenue of $1.51 billion is lower than the previous year and missed the consensus estimate, the decline of -0.7% is offset by the performance over the past 2, 3, and 4 years. Revenue is up compared to 2021, 2020, and 2019.

The DTC segment led the way, with strong sales in comp stores and digital channels contributing to a 14% gain. This was offset by an 8% decline in Wholesale and a 12% increase in Other (including Dockers).

Although the margin news is not particularly exciting, it is consistent with the company’s performance over the years. The decline in gross and adjusted margins is attributed to deleveraging, acquisition-related expenses, and increased selling, general, and administrative (SG&A) expenses. However, the adjusted earnings of $0.28 are within the range set in prior years, so the decline and miss of $0.01 are not a cause for alarm. The important thing is that the company’s cash flow from operations and adjusted earnings can sustain the business and dividend payments.

The bottom line is that the business has rebounded strongly from the lows of the pandemic and is stabilizing with a mid-single-digit gain compared to 2019. The stock price is down almost 30% compared to 2019, indicating that the market has oversold the stock.

Levi Strauss has received mixed coverage from analysts this year, but the overall consensus rating is a Moderate Buy, which is an improvement from the previous Hold rating. The price target suggests that the market has upside potential. The recent low price target set by two firms is $14, which is 7.5% above the post-release price action. The consensus target assumes a further 7.5% to 15% increase on top of the low target.

Institutions also support the stock, with ownership of about 28% and consistent buying for 5 consecutive quarters. This is in line with the bottoming action that started in the spring of 2022. If institutions continue to buy, it is likely that the stock has reached its bottom or will soon find it.

The technical outlook for Levi Strauss shows that it is trading at critical levels. The bottoming action, combined with the price action in 2023, indicates a support level near $13. Although the stock price is currently near that level after the Q3 release, there is already some bottom-fishing happening. The fact that the price has firmed from its lows suggests that there is still support at this level. If the market confirms this signal, the stock should continue to trend sideways in Q4. However, if the support level is not maintained, Levi Strauss’s stock price could fall below $13 and retest the support levels set in 2020.

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