Apparel Stocks

VF Corp Valuation – April 2018 $VFC

Company Profile (excerpt from Reuters): V.F. Corporation (VF), incorporated in December 4, 1899, is engaged in the design, production, procurement, marketing and distribution of branded lifestyle apparel, footwear and related products. The Company’s segments include Outdoor & Action Sports, Jeanswear, Imagewear and Sportswear. It owns a portfolio of brands in the outerwear, footwear, denim, backpack, luggage, accessory, sportswear, occupational and performance apparel categories. Its products are marketed to consumers shopping in specialty stores, department stores, national chains, mass merchants and its own direct-to-consumer operations. Its direct-to-consumer business includes VF-operated stores, concession retail stores and e-commerce sites. Its brands sell products in international markets through licensees, distributors and independently-operated partnership stores. Its products were obtained from 27 VF-operated manufacturing facilities and approximately 1,600 contractor manufacturing facilities in over 50 countries, as of December 31, 2016. It also operated 33 distribution centers and 1,507 retail stores, as of December 31, 2016. It had a portfolio of over 30 brands across a spectrum of activities and lifestyles, as of December 31, 2016. Its brands primarily include The North Face, Vans, Timberland, Wrangler, Lee, Nautica and Kipling.

VFC Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of VFC – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $30,272,089,038 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.60 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 63.35% Pass
6. Moderate PEmg Ratio PEmg < 20 31.08 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.21 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.33 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.46
MG Growth Estimate 0.64%
MG Value $24.01
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $35.60
MG Value based on 0% Growth $20.87
Market Implied Growth Rate 11.29%
Current Price $76.31
% of Intrinsic Value 317.84%

VF Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.36 in 2014 to an estimated $2.46 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.29% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into VF Corp revealed the company was trading above its Graham Number of $25.23. The company pays a dividend of $1.72 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.08, which was below the industry average of 46.02, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.61.

VF Corp performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.61
Graham Number $25.23
PEmg 31.08
Current Ratio 1.60
PB Ratio 8.21
Current Dividend $1.72
Dividend Yield 2.25%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $4,392,124,000
Total Current Liabilities $2,745,200,000
Long-Term Debt $2,187,789,000
Total Assets $9,958,502,000
Intangible Assets $4,014,662,000
Total Liabilities $6,238,602,000
Shares Outstanding (Diluted Average) 400,379,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.01
Dec2017 $1.52
Dec2016 $2.54
Dec2015 $2.85
Dec2014 $2.38
Dec2013 $2.71
Dec2012 $2.43
Dec2011 $2.00
Dec2010 $1.30
Dec2009 $1.03
Dec2008 $1.36
Dec2007 $1.31
Dec2006 $1.18
Dec2005 $1.11
Dec2004 $1.05
Dec2003 $0.90
Dec2002 -$0.37
Dec2001 $0.30
Dec2000 $0.55
Dec1999 $0.75
Dec1998 $0.78

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.46
Dec2017 $2.25
Dec2016 $2.61
Dec2015 $2.58
Dec2014 $2.36
Dec2013 $2.19
Dec2012 $1.83
Dec2011 $1.49
Dec2010 $1.23
Dec2009 $1.20
Dec2008 $1.25
Dec2007 $1.17
Dec2006 $1.00
Dec2005 $0.80
Dec2004 $0.59
Dec2003 $0.38
Dec2002 $0.22

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – July 2016
Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
26 Best Stocks For Value Investors This Week – 2/6/16
VF Corporation Valuation – February 2016 Update $VFC

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Nike Inc Valuation – February 2018 $NKE
Nike Inc Valuation – July 2017 $NKE
Deckers Outdoor Corp Valuation – Initial Coverage $DECK
Ralph Lauren Corp Valuation – April 2017 $RL
Abercrombie & Fitch Co Valuation – March 2017 $ANF

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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