VF Corporation Quarterly Stock Valuation – September 2014 $VFC

Vfc-lBenjamin 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 or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  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 Corp (VFC) 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.
VFC Chart

VFC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. 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
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. 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

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $64.51
MG Value $99.38
MG Opinion Undervalued
Value Based on 3% Growth $37.43
Value Based on 0% Growth $21.94
Market Implied Growth Rate 8.25%
NCAV -$1.82
PEmg 24.99
Current Ratio 2.02
PB Ratio 4.92

Balance Sheet – 6/30/2014

Current Assets $3,779,900,000
Current Liabilities $1,870,300,000
Total Debt $1,425,100,000
Total Assets $10,215,300,000
Intangible Assets $4,940,300,000
Total Liabilities $4,562,000,000
Outstanding Shares 430,890,000

Earnings Per Share

2014 (estimate) $3.06
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 – ModernGraham

2014 (estimate) $2.58
2013 $2.19
2012 $1.83
2011 $1.49
2010 $1.24
2009 $1.21

Dividend History

VFC Dividend Chart

VFC Dividend data by YCharts

Conclusion:

VF Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.24 in 2010 to an estimated $2.58 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 8.25% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of VF Corporation (VFC) for more perspective!

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.

Disclaimer:  The author did not hold a position in VF Corporation (VFC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.


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