Levi Strauss & Co Class A Common Stock (LEVI) fair value

ACCE thesis

Levi Strauss makes the 501 and other denim and casual apparel sold through its own stores, its Levi's and Dockers wholesale channels, and its digital storefronts, with a brand that is both the category reference point and a large direct-to-consumer business. The moat is the brand itself, which supports a 61.6% gross margin that sits well above most apparel peers and lets the company absorb promotional swings without losing its earnings base. Revenue grew 4.3% and the stock trades at 12.8 times trailing earnings and 16.8 times forward, so the market is pricing in some slowdown in earnings growth relative to the top line. The 10.4% operating margin is the number to pressure-test, because it leaves less room than the gross margin suggests once SG&A and marketing are paid, and the 26.3% ROE is flattered by a balance sheet with meaningful debt. At a 7.9 billion dollar market cap with no index membership, this is a mid-cap that will reward a deeper look only if you believe the margin structure can hold through a weaker consumer cycle.