Levi Strauss’ sale of Dockers boosts UBS confidence in long-term strategy

Levi Strauss & Co (NYSE:LEVI)’s announcement of the sale of its Dockers brand to Authentic Brands Group for $311 million has UBS analysts more bullish on the clothing company, most famous for its jeans.

Notably, the deal could be worth up to $391 million for Levi based on an additional $80 million cash earnout contingent on Dockers’ performance under Authentic Brands.

The analysts wrote in a note that the divestiture will help the company streamline operations, sharpen its strategic focus, and strengthen its financial profile.

According to the note, the move enables Levi to enhance organic revenue growth, improve margins by lowering costs, reduce its exposure to the US wholesale market, and allocate more resources toward expanding the Levi’s and Beyond Yoga brands.

In addition to those strategic benefits, UBS also noted an improved ability to return capital to shareholders.

“The deal will give Levi the ability to proceed with incremental share buybacks,” they wrote, noting that approximately $100 million of the sale proceeds will be used for repurchases.

UBS added that this transaction improves the case for multiple expansion in the stock.

“Our view is once Levi can convince the market it can consistently deliver positive mid-single-digit percentage revenue growth at a healthy margin, its price-to-earnings ratio should expand,” the analysts wrote.

They forecast an approximately 11% compound annual earnings per share growth rate from fiscal 2024 to fiscal 2029.

The analysts did not make material changes to their fiscal 2025 earnings per share (EPS) forecast, as the Dockers business had already been treated as discontinued operations. However, they increased their fiscal year 2026 and fiscal year 2027 EPS estimates by about 1% to reflect additional anticipated share repurchases.

UBS repeated its ‘Buy’ rating and $20 price target on Levi’s, reflecting upside from its share price of about $17 on Wednesday.

“We believe Levi’s ongoing transformation into a global, multi-channel, lifestyle brand for both men and women from what traditionally was a North America, wholesale, men’s, denim business should continue to fuel share gains over the long-term,” they wrote. “We have greater conviction in this view after the announcement of the Dockers divestiture.”