Issue #79

A deep dive into the heritage icon and the high-growth disruptor dominating the consumer sector with record margins and strong analyst 'Buy' ratings.'

The global retail recovery isn’t being led by the cheapest clearance racks or the biggest department stores — it’s being won by brands that have mastered the art of the "direct-to-consumer" pivot and premium brand loyalty. As consumer spending patterns shift from mass-market quantity to brand-name quality, the market is rewarding two specific types of winners: the heritage icons reinventing themselves for the digital age, and the high-performance newcomers disrupting global sports.

This is where the retail conversation moves from general foot traffic to brand equity — and where the most resilient, analyst-favored winners are emerging.

👉 One company is a 170-year-old icon shedding its legacy weight to become a high-margin, "DTC-first" denim lifestyle powerhouse.

👉 The other is a Swiss-born innovator that has turned high-performance cushioning into a global status symbol, stealing market share with industry-leading growth.

👉 Both are expanding margins, dominating the "premium" category, and currently sitting at the top of analyst "Buy" lists for 2026.

In this edition, we break down the heritage engine and the performance disruptor fueling the new consumer economy — and why these two stocks are currently the darlings of the cyclical sector.

Levi Strauss & Co. (NYSE: LEVI)

Levi Strauss & Co. (NYSE: LEVI) is an iconic global leader in denim, fundamentally transforming from a traditional wholesaler into a direct-to-consumer (DTC) denim lifestyle brand. Under the leadership of CEO Michelle Gass, the company is aggressively expanding its footprint beyond its legendary 501 jeans, moving "head-to-toe" into categories like tops, skirts, and dresses, while leveraging a powerful global supply chain to maintain its status as the world’s most recognizable apparel brand.

Business Model and Revenue Streams 📦

Levi’s business model is currently in a state of intentional evolution, shifting away from a reliance on department store wholesale toward high-margin, brand-controlled channels. The company operates through several distinct revenue streams:

• Direct-to-Consumer (DTC): This is the crown jewel of Levi’s growth strategy. It includes the company’s own brick-and-mortar stores and its rapidly growing e-commerce platform. As of late 2025, DTC accounts for roughly 49% of total net revenues. This segment is prioritized because it offers higher gross margins and provides the company with direct data on consumer preferences.
• Wholesale: While the company is "DTC-first," it maintains a massive global wholesale network. However, Levi’s has been actively "rationalizing" this segment—meaning it is pulling back from less profitable or brand-diluting partners to focus on premium retailers that align with its high-end positioning.
• Diversified Brands and Categories: Beyond the core Levi’s label, the company owns Beyond Yoga, a high-growth activewear brand that saw nearly 45% organic growth in late 2025. Additionally, the company is expanding its "Tops" category, which now contributes to nearly half of its recent revenue growth.

Macroeconomic policies, specifically tariffs, are currently the primary external headwind. Management has noted a roughly 150 basis point impact on gross margins due to import duties on Chinese and global goods. To counter this, Levi’s has successfully implemented "targeted pricing actions," effectively passing costs to consumers while maintaining demand through strong brand loyalty.

Recent Performance and Corporate Developments 📈

Levi Strauss reported robust results for the fourth quarter of 2025, demonstrating that its "Project Fuel" productivity initiative and DTC focus are paying off.

Q4 2025 Financial Highlights: 💰

• Total Revenue: Net revenues reached $1.8 billion, a 5% increase on an organic basis.
• Net Income: For the full year 2025, net income from continuing operations soared to $502 million, more than doubling the $210 million reported in 2024.
• Gross Margin: The company achieved record annual gross margins of 61.7%, driven by a favorable shift toward DTC sales and effective price increases.
• Regional Strength: Europe and Asia were standout performers, with Europe growing 10% organically, led by double-digit gains in Germany and the UK.

Strategic Initiatives and Mergers: 🤝

A major structural change was the divestiture of the Dockers brand. Levi’s sold the U.S. and Canadian operations of Dockers in July 2025 and is on track to complete the sale of remaining global operations by late February 2026. This move allows the company to focus exclusively on its higher-growth denim and yoga segments. Furthermore, the company recently partnered with Microsoft to launch a conversational AI "stylist" chatbot to enhance the digital shopping experience.

Profitability and Fair Value 🎯

Levi’s is currently a highly profitable enterprise with a strengthening balance sheet. The company’s path to sustained profitability is anchored in margin expansion; they are currently striving toward an adjusted EBIT margin of 15%.

Regarding fair value, LEVI is frequently cited as undervalued by financial analysts. While the stock has faced some volatility due to slightly conservative 2026 earnings guidance, many analysts see the current price (around $19–$21) as a significant discount. Discounted Cash Flow (DCF) models suggest a fair value closer to $25.40, implying the stock is trading at a roughly 16% to 20% discount to its intrinsic value. The company’s "fortress-like" balance sheet and a new $200 million accelerated share repurchase program further signal that management believes the stock is a bargain.

Analyst Estimates and Ratings 📊

• Consensus Rating: The stock currently holds a "Moderate Buy" to "Strong Buy" consensus. In the last 30 days, it has remained a favorite among analysts following its Q4 earnings beat.
• Price Target: The average 12-month price target sits at approximately $26.69, with high-side estimates reaching as far as $33.00. This suggests a potential upside of over 35% from current levels.
• Recent Actions: Major firms like Needham, Telsey Advisory Group, and JP Morgan have recently reiterated "Buy" or "Outperform" ratings, citing the successful DTC transition as the primary catalyst.

Investor-Focused Takeaway: Is LEVI Right for Your Portfolio?

Levi Strauss & Co. offers a rare combination of "Old Economy" brand stability with "New Economy" digital growth. By shedding the slower-growing Dockers brand and doubling down on e-commerce and women's apparel, the company has positioned itself as a leaner, more profitable machine.

What to watch in the near term:

Keep an eye on the completion of the Dockers exit in February 2026 and the continued impact of trade tariffs. If Levi’s can maintain its pricing power without losing volume, the 2026 fiscal year could see the stock finally break toward those $30+ analyst targets.

On Holding AG (NYSE: ONON)

On Holding AG (NYSE: ONON), the Swiss-born performance sportswear brand, has transitioned from a niche running shoe favorite into a global powerhouse. Known for its proprietary CloudTec® cushioning, the company is currently one of the fastest-growing names in the consumer cyclical space, successfully bridging the gap between high-performance athletics and premium lifestyle fashion.

Business Model and Revenue Streams 📦

On Holding operates a premium business model focused on innovation-led growth and high-margin distribution. Unlike many competitors that struggle with heavy discounting, On maintains a strictly controlled "premium" positioning that protects its brand equity. Its revenue is generated through three primary pillars:

• Footwear (Core Engine): The vast majority of revenue comes from high-performance running shoes. However, the company is rapidly diversifying into "outdoor" (hiking) and "all-day" (lifestyle) shoes to capture a broader consumer base.
• Apparel and Accessories: This is a high-growth strategic priority. On is aggressively expanding its clothing line (jackets, tights, and tops), aiming for apparel to represent over 10% of its total revenue mix by late 2026.
• Multi-Channel Distribution: On utilizes a "wholesale-led, DTC-accelerated" strategy. It partners with premium global retailers like Foot Locker and Nordstrom to build brand awareness while simultaneously driving customers to its high-margin Direct-to-Consumer (DTC) website and flagship "On Labs" retail stores.

Macroeconomic conditions in 2026, particularly foreign exchange volatility, remain a key factor. As a Swiss company reporting in CHF (Swiss Francs) but earning significant revenue in USD and EUR, currency fluctuations can impact reported growth. However, the company has mitigated this through robust geographic expansion, particularly in the Asia-Pacific (APAC) region, which saw a staggering 109% growth in recent periods, providing a natural hedge against regional slowdowns.

Recent Performance and Corporate Developments 📈

On Holding entered 2026 with significant momentum, having consistently outpaced industry growth rates.

Recent Financial Highlights: 💰

• Revenue Growth: In its most recent reports leading into 2026, On delivered record net sales, increasing by approximately 34% on a constant-currency basis.
• Profitability Surge: Net income has seen dramatic year-over-year increases, with recent quarterly profits jumping nearly 290% as the company scales.
• Margin Expansion: The company’s gross profit margin has reached an industry-leading 65.7%, significantly higher than many of its peers, thanks to its full-price selling strategy and DTC growth.

Strategic News and Leadership: 🤝

In January 2026, On announced a major leadership transition, appointing Frank Sluis as the new Chief Financial Officer (CFO), effective May 2026. This move is seen by analysts as a step toward professionalizing its executive suite for the next phase of global scaling. On also confirmed a strong order book for the first half of 2026, supported by the upcoming launches of the Cloudrunner 3 and Cloudmonster 3, which are expected to drive significant Q1 and Q2 volume.

Profitability and Fair Value 🎯

On Holding is no longer just a "growth story"—it is a profitability story. The company has already reached a turning point where its economies of scale are outpacing its operational costs. It is currently on track to hit an Adjusted EBITDA margin of 18%+ by the end of 2026.

In terms of valuation, ONON often carries a high Price-to-Earnings (P/E) multiple compared to the broader footwear industry. However, many analysts argue this premium is justified by its 30% compound annual growth rate (CAGR). Discounted Cash Flow (DCF) models currently estimate the stock's intrinsic fair value at approximately $53.37, suggesting that even with its recent rally, the stock may still be undervalued by about 15-20% relative to its long-term cash-generation potential.

Analyst Estimates and Ratings 📊

• Consensus Rating: ONON is a "Strong Buy" favorite. Out of over 20 analysts covering the stock, roughly 85% maintain a "Buy" or "Strong Buy" rating.
• Price Targets: The average 12-month price target has recently trended upward toward $62.50, with some aggressive targets from firms like UBS and Bernstein reaching as high as $70.00 to $85.00.
• Market Sentiment: The stock has recently outperformed the broader consumer cyclical sector, rallying over 30% in the last few months as investors reward its consistent "beat and raise" earnings pattern.

Investor-Focused Takeaway: Is ONON Right for Your Portfolio?

On Holding AG is a "best-in-class" growth play. While the valuation isn't "cheap" in traditional terms, the company is successfully stealing market share from legacy players like Nike and Adidas. Its high gross margins provide a massive safety buffer against rising production costs.

What to Watch in the Near Term: 📈

• Apparel Penetration: Watch if the apparel segment can maintain its triple-digit growth rate, as this will be the key to reaching its 2026 profitability targets.
• China Momentum: The company is aiming for China to account for 10% of total sales; any geopolitical or economic shifts in the Chinese retail market could impact this goal.
• New Product Cycle: Monitor the reception of the Cloudrunner 3 launch in Q1 2026, as it will set the tone for the fiscal year.

Final Take: The Heritage Icon and the Performance Disruptor

The retail recovery isn’t about who has the most stores—it’s about who owns the consumer’s loyalty and the highest margins. That requires two things: a brand that carries generational trust and a product that redefines performance.

That’s where Levi Strauss & Co. (LEVI) and On Holding AG (ONON) stand apart.

👖 Levi Strauss & Co. (LEVI) — The Global King of Denim Lifestyle

• ✔ Pivoting from wholesale reliance to a high-margin, "DTC-first" powerhouse.
• ✔ Divesting underperforming brands (Dockers) to focus on core denim and activewear growth.
• ✔ Record annual gross margins of 61.7% and a massive $200M share buyback program.
• ➤ Best for: Investors seeking a stable, undervalued dividend payer with a clear strategy for margin expansion and brand modernization.

👟 On Holding AG (ONON) — The Performance Engine Disrupting Sportswear

• ✔ Industry-leading growth with recent quarterly profits surging nearly 290%.
• ✔ Exceptional 65.7% gross margins driven by premium, full-price selling.
• ✔ Massive untapped potential in apparel and high-growth markets like APAC and China.
• ➤ Best for: Growth-oriented investors looking for a "best-in-class" disruptor that is successfully taking market share from legacy footwear giants.

Investor Insight

• 🧩 Want a legacy turnaround with high dividends and a fortress balance sheet? → LEVI
• ⚙️ Want explosive growth and premium market disruption? → ONON

Bottom Line:

The consumer cyclical sector doesn’t reward mediocrity—it rewards brand authority and operational efficiency.

Levi’s owns the history and the "head-to-toe" denim wardrobe, while On Holding owns the future of performance innovation. As the retail landscape continues to favor premium brands with direct consumer relationships, LEVI and ONON aren't just participants—they are the new blueprints for retail success.

​
Happy Trading
​— Team Premium Stock Alerts