VF Corp (VFC) Quarterly Valuation
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how VF Corporation fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): V.F. Corporation (VF) is a global apparel company based in the United States. The Company designs and manufactures or sources from independent contractors a variety of apparel and footwear for all ages, including jeanswear, outerwear, footwear, packs, luggage, sportswear, and occupational and performance apparel. Products are marketed primarily under VF-owned brand names. It is a diversified apparel company across brands, product categories, channels of distribution and geographies. These products are marketed to consumers shopping in specialty stores, upscale and traditional department stores, national chains and mass merchants. These groupings of businesses are called coalitions and consist of the following: Outdoor & Action Sports, Jeanswear, Imagewear, Sportswear and Contemporary Brands. On April 30, 2012, the Company sold its 80% ownership in John Varvatos Enterprises, Inc.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| Recent Price | $58.56 |
| MG Value | $72.07 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $31.78 |
| Value Based on 0% Growth | $18.63 |
| Market Implied Growth Rate | 9.11% |
| NCAV | -$0.81 |
| PEmg | 26.72 |
| Current Ratio | 2.48 |
| PB Ratio | 4.24 |
Balance Sheet – 12/31/2013
| Current Assets | $3,883,000,000 |
| Current Liabilities | $1,568,000,000 |
| Total Debt | $1,426,800,000 |
| Total Assets | $10,315,400,000 |
| Intangible Assets | $5,102,600,000 |
| Total Liabilities | $4,238,400,000 |
| Outstanding Shares | 440,310,000 |
Earnings Per Share
| 2013 | $2.71 |
| 2012 | $2.43 |
| 2011 | $2.00 |
| 2010 | $1.29 |
| 2009 | $1.03 |
| 2008 | $1.36 |
| 2007 | $1.35 |
| 2006 | $1.18 |
| 2005 | $1.14 |
| 2004 | $1.05 |
Earnings Per Share – ModernGrahamÂ
| 2013 | $2.19 |
| 2012 | $1.83 |
| 2011 | $1.49 |
| 2010 | $1.24 |
| 2009 | $1.21 |
| 2008 | $1.27 |
Dividend History
VFC Dividend data by YCharts
Conclusion:
VF Corporation is suitable for the Enterprising Investor but not the Defensive Investor, due to the high PEmg and PB ratios. Â The company passes all of the requirements of the Enterprising Investor, and that investor type should feel comfortable proceeding with further research into to the company. Â Such research should also include a review of other opportunities, such as through a review of ModernGraham’s valuation of Nike Inc. (NKE) or a review of 5 Low PEmg Companies for the Enterprising Investor. Â From a valuation standpoint, the company appears fairly valued after growing its EPSmg (normalized earnings) from $1.21 in 2009 to $2.19 for 2013. Â This is a level of demonstrated historical growth that supports the market’s implied estimate for earnings growth of 9.11%, and the ModernGraham valuation model returns an intrinsic value estimate that falls within a margin of safety in relation to the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on VF Corporation (VFC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in VF Corporaiton (VFC) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.
