LEVI

We rate LEVI STRAUSS & CO (LEVI) as a Buy with a composite score of 67.5/100 at a current price of $22.09. The stock scores above average across the majority of our six quantitative factors and ranks #173 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in value (91th percentile) and quality (85th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (33th percentile) and momentum (53th percentile) tempers our overall conviction. We assign a Narrow Moat rating (68/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

LEVI STRAUSS & CO holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 67.5/100 places it at rank #173 in our full 7,333-stock universe. At $8.6B in market capitalization, LEVI STRAUSS & CO is a mid-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 7%, though momentum at the 53th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 62% (+19.1pp vs sector) narrow to operating margins of 8% (+6.9pp vs sector) and net margins of 7.2%, yielding a gross-to-net conversion rate of 12%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $22.09, LEVI STRAUSS & CO appears undervalued relative to its fundamentals. Our value factor score of 91/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 20.3x (roughly in line with the sector median of 22.3x), EV/EBITDA of 20.1x (at a premium), P/B of 3.9x, P/S of 1.5x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to LEVI STRAUSS & CO. The stock presents a balanced risk profile: elevated market sensitivity (beta of 1.50). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.50). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 66th percentile and quality factor at the 85th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 62% provide a buffer against cost pressures; above-average stability (66th percentile) suggests predictable business dynamics; a 3.04% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate LEVI STRAUSS & CO's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 19.4%, and the balance sheet is managed within acceptable parameters (D/E: 46%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; LEVI STRAUSS & CO falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 3.04% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, LEVI STRAUSS & CO receives a Buy rating with a composite score of 67.5/100 (rank #173 of 7,333). Our quantitative framework assigns a Narrow Moat (68/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 66/100.

Our analysis supports a constructive view on LEVI STRAUSS & CO. The combination of identifiable competitive advantages, medium uncertainty, and standard capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.