Critical Analysis: Cato (NYSE:CATO) & Levi Strauss & Co. (NYSE:LEVI)

Cato (NYSE:CATO) and Levi Strauss & Co. (NYSE:LEVI) are both retail/wholesale companies, but which is the better stock? We will contrast the two businesses based on the strength of their analyst recommendations, institutional ownership, profitability, valuation, risk, dividends and earnings.

Dividends

Cato pays an annual dividend of $0.51 per share and has a dividend yield of 18.1%. Levi Strauss & Co. pays an annual dividend of $0.56 per share and has a dividend yield of 2.7%. Cato pays out -37.8% of its earnings in the form of a dividend. Levi Strauss & Co. pays out 54.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Levi Strauss & Co. has increased its dividend for 4 consecutive years. Cato is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings and Valuation

This table compares Cato and Levi Strauss & Co.”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Cato	$642.95 million	0.09	-$18.06 million	($1.35)	-2.09
Levi Strauss & Co.	$6.36 billion	1.29	$210.60 million	$1.02	20.35

Levi Strauss & Co. has higher revenue and earnings than Cato. Cato is trading at a lower price-to-earnings ratio than Levi Strauss & Co., indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Cato and Levi Strauss & Co.’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Cato	-4.02%	-14.71%	-5.80%
Levi Strauss & Co.	6.40%	28.75%	9.03%

Analyst Ratings

This is a summary of current recommendations for Cato and Levi Strauss & Co., as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Cato	0	0	0	0	0.00
Levi Strauss & Co.	0	2	9	0	2.82

Levi Strauss & Co. has a consensus target price of $23.4545, suggesting a potential upside of 13.00%. Given Levi Strauss & Co.’s stronger consensus rating and higher possible upside, analysts plainly believe Levi Strauss & Co. is more favorable than Cato.

Volatility and Risk

Cato has a beta of 0.85, meaning that its stock price is 15% less volatile than the S&P 500. Comparatively, Levi Strauss & Co. has a beta of 1.21, meaning that its stock price is 21% more volatile than the S&P 500.

Institutional & Insider Ownership

61.1% of Cato shares are owned by institutional investors. Comparatively, 69.1% of Levi Strauss & Co. shares are owned by institutional investors. 18.1% of Cato shares are owned by insiders. Comparatively, 1.3% of Levi Strauss & Co. shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Summary

Levi Strauss & Co. beats Cato on 14 of the 17 factors compared between the two stocks.

About Cato

The Cato Corporation, together with its subsidiaries, operates as a specialty retailer of fashion apparel and accessories primarily in the southeastern United States. It operates through two segments, Retail and Credit. The company's stores and e-commerce websites offer a range of apparel and accessories, including dressy, career, and casual sportswear; and dresses, coats, shoes, lingerie, costume jewelry, and handbags, as well as men's wear, and lines for kids and infants. It operates its stores and e-commerce websites under the Cato, Cato Fashions, Cato Plus, It's Fashion, It's Fashion Metro, and Versona names. It also provides credit card services to its customers, as well as layaway plans for customers. The Cato Corporation was incorporated in 1946 and is headquartered in Charlotte, North Carolina.

About Levi Strauss & Co.

Levi Strauss & Co. engages in the design, marketing, and sale of apparel products. The company offers jeans, casual and dress pants, tops, shorts, skirts, jackets, footwear, and related accessories. It operates through the following geographical segments: Americas, Europe, and Asia. The company was founded by Levi Strauss in 1853 and is headquartered in San Francisco, CA.