Wells Fargo has adjusted its rating on Levi Strauss to Equal Weight from Overweight, while retaining a $25 price target. The brokerage said the apparel maker's large share-price advance and consecutive earnings beats have been reflected in the stock's valuation, resulting in a more balanced risk-reward profile.
In its note, Wells Fargo highlighted that Levi's shares have risen about 40% since February, outpacing the S&P 500's roughly 14% gain. The firm attributed much of that move to consecutive results that beat expectations, raised guidance and improving sentiment toward the denim category. The brokerage added that the companys revenue growth outlook has been lifted to 7%-7.5% from a prior 5%-6%, and that the shares have re-rated from below 12 times forward earnings to around 15 times.
Despite the stronger top-line outlook and the valuation move, Wells Fargo said several aspects of recent reporting have prompted caution, particularly around margins and earnings flow-through. The firm noted that second-quarter revenue topped forecasts but margins did not show upside; that third-quarter operating margin guidance was below Wall Street estimates; and that the company's fourth-quarter margin objectives look ambitious.
The brokerage summarized Levi's fourth-quarter plan as targeting operating margin expansion of 150 to 200 basis points, driven by seasonal volume, lower advertising spending, distribution center efficiencies and easing tariff pressure. Wells Fargo warned that reaching the implied 45%-50% incremental margins would require a material improvement in operating leverage.
Wells Fargo also flagged leadership continuity as a potential near-term headwind, noting the planned retirement of Chief Financial Officer Harmit Singh in November. The analysts said the combination of margin execution uncertainty and the upcoming CFO transition supports moving to the sidelines.
Despite the downgrade, the firm left its earnings forecasts intact, maintaining estimates of $1.52 per share for fiscal 2026 and $1.64 for fiscal 2027. The $25 price target remains unchanged and is based on a 15-times multiple of the fiscal 2027 earnings estimate.
Bottom line: Wells Fargo's downgrade to Equal Weight reflects its view that recent share gains, stronger revenue guidance and improved sentiment have already been incorporated into Levi Strauss's valuation, while margin execution questions and an impending CFO departure create near-term risk.