Denim stocks — such as LEVI and KTB — have been coming back in fashion recently, thanks in major part to two of the biggest pop sensations on the planet: Beyoncé and Taylor Swift. Athleisure fashion trends are finally starting to run out of steam, with Lululemon (NASDAQ:LULU), Nike (NYSE:NKE), and other “sporty” apparel makers going into downward dog formation following their latest underwhelming quarterly results. Consequently, questions linger as to what’s going to be “in” over the foreseeable future.
After the latest upbeat quarter delivered by jeans giant Levi’s (NYSE:LEVI), value investors looking to bet on the next big fashionable shift may have a friend in one of the oldest clothing brands in America. Even after Levi’s upbeat quarter, the stock still looks cheap, with a noteworthy dividend (currently yielding just shy of 2.5%) that’s poised for greater growth. Kontoor Brands (NYSE:KTB) is another major denim player that’s poised for upside.
Denim’s Return Could be Big for LEVI and KTB
At this juncture, I think denim stocks are coming back in a big way. Whether it’s Beyoncé, with her Levi’s brand name drop in one of her latest singles, Levii’s Jeans, and incredibly stylish new denim outfits, or Taylor Swift’s Superbowl outfit, the denim boom of 2024 could be tough to stop.
As Beyoncé fans, Swifties (a nickname for Taylor Swift fans), and the rest of the herd look to trade in their skin-tight yoga wear for looser-fitting Levi’s jeans and denim jackets, I’d be inclined to watch denim stocks very closely over the next year.
Undoubtedly, fashion trends can be tough to spot and even tougher to bet on. In any case, I think the biggest pop icons are dropping subtle breadcrumbs as to where the puck could be headed next in the ever-changing world of fashion. Though I wouldn’t bet against the athleisure pioneers (like Lululemon), I would look for top denim plays to begin to benefit from a sales jolt as we see more of the latest denim fashions and less of the from-the-gym-to-the-office look that’s dominated for well over a decade.
As magnificent as Levi’s latest results were, it’s not the only denim play to have on your radar. In fact, there may be even more value to be had in dark horse Kontoor Brands, a firm behind Levi’s rivals, Wrangler and Lee. Though Kontoor is more of a wholesale play than a direct-to-consumer (DTC) one compared to Levi’s, I do see the firm benefiting from the same industry tailwinds as denim experiences a comeback.
Therefore, let’s use TipRanks’ Comparison Tool below to help decide whether Levi’s or Kontoor Brands is a better fit for your portfolio right now.
Levi’s (NYSE:LEVI)
Jeans may be a timeless fashion item, but every so often, Levi’s stands to benefit from sales booms. Such booms can be tough to predict, though, given how quickly fashion industry dynamics can shift. In any case, Levi’s stands out as a firm that doesn’t have nearly as much to fumble to the downside, even when denim takes a backseat to most other trends. Undoubtedly, denim seems to always find a way to come back. And even when athleisure is in the driver’s seat, denim still holds a strong place for everyday wear.
Following a solid quarter and a remarkable year-to-date rally of more than 22%, Levi’s seems to be one of the most fashionable apparel plays on Wall Street. With its “DTC-first” approach, the company may just be able to enjoy higher margins as sales look to grow by the low-single digits.
For Fiscal 2024, management is guiding for 1-3% sales growth with adjusted earnings per share (EPS) to fall into the $1.17-1.27 range, up from $1.15-1.25. I think the sales guidance hike is still too conservative, especially as Levi’s builds on its “head-to-toe” denim lifestyle apparel, which entails more than just jeans.
At just 16.1 times forward price-to-earnings (P/E), LEVI stock stands out as an intriguing value option that can easily build on newfound momentum. With a new EVP, Gianluca Flore, bringing his luxury brand expertise (from Kering (OTC:PPRUY) and Burberry (OTC:BURBY)) to Levi’s, it will be interesting to see where the firm takes the brand from here.
What Is the Price Target for LEVI Stock?
LEVI stock is a Moderate Buy, according to analysts, with five Buys and six Holds assigned in the past three months. The average LEVI stock price target of $22.00 implies 10.8% upside potential.
Kontoor Brands (NYSE:KTB)
Kontoor Brands may not have gotten a namedrop from Beyoncé, but the stock also stands to gain if we’re on the cusp of a denim boom. The stock has been a hot performer, soaring over 67% since bottoming out in October 2022, along with the rest of the market.
More recently, shares corrected by around 15% on the back of a rough fourth quarter and some pretty muted guidance. I can’t help but stay bullish, though, as the latest dip seems like a golden buying opportunity, given management’s efforts and modest expectations ahead.
For the quarter, Wrangler saw global sales fall 9%, while Lee saw a 6% decrease. Undoubtedly, it seems like Kontoor’s brands are taking a big breather after taking market share in the U.S. earlier last year. And while Levi’s is the better of the two stocks at this juncture, I wouldn’t bet against KTB as it looks to pick up where it left off in the back half of last year. The stock is far cheaper than LEVI at 11.5 times forward P/E, with a larger 3.4% dividend yield.
Looking ahead, I’d look for Kontoor to really start gaining as its multi-year transformation plan, Project Jeanius, looks to jolt growth and enhance margins. The plan is expected to save Kontoor as much as $100 million, which is planned to be reinvested in growth initiatives. Combined with broad strength in the denim fashion scene, KTB stock is not a name I’d bet against — not while it looks to give Levi’s a good run for its money.
What Is the Price Target for KTB Stock?
KTB stock is a Strong Buy, according to analysts, with six Buys and one Hold assigned in the past three months. The average KTB stock price target of $67.50 implies 24.5% upside potential.
The Takeaway
Denim stocks have a lot of wind at their backs as they look to finally move past rough consumer-facing headwinds. As music icons continue dawning the latest denim fashions, it’d be a mistake to count the “Big Two” out of the game as they look to continue their recovery toward new highs. Between the two, analysts see more upside in the cheaper and higher-yielding KTB stock (24.5%).
