3D Systems Still Not A Buy, V.F. Corp. Has 50%+ Upside And What's Next For The Market

Includes: DDD, DIA, SPY, SSYS, VFC
by: David Ristau

In today's Oxen Group recap, we will be looking at V.F. Corp. (NYSE:VFC) in our deeper look as well as 3D Systems (NYSE:DDD) after the company's move higher today. The Oxen Group covers VFC and DDD year round, and we want to update our current pricing to reflect recent occurrences. Additionally, we cover our typical market overview, important news, and give our perspective on what's moving the market.

Today's Overview

The markets were fairly muted today without many catalysts. There was no data today as well as the bond market closed due to Veterans Day. The markets trended slightly higher on the back of some positive news from China as retail sales were up 13% for the year, while industrial production jumped 10%. Further, consumer prices rose less than expected. That news helped lift the Asian and European markets. The U.S. markets are a bit more muted with a large market event developing on Thursday, as Janet Yellen will testify to the Senate Banking Committee as part of her potential nomination to the Fed.

Deeper Look

V.F. Corp.

The latest earnings report from VF Corp was another positive one. In our last report on VF, we noted that the stock had tremendous upside, and we believe that the company still has that upside. The company had a tremendous development in mid-June with a five-year growth plan that is quite enticing. Today, we want to update on that plan and how the company is doing as well as update our model that had a $217 price target.

Under this five-year growth plan, the company will do the following:

· Drive cash flow, increase dividends, and share repurchases

· Expected to grow revenue to over $17B by 2017 (CAGR 10% per year)

· EPS to grow to 18.00 by 2017

· Outdoor and Action Sports will see revenue grow to $11.1B by 2017 to 64% of the company's total revenue (expects 11% CAGR per year)

· Jeanswear growth at 4% per year

· Sportswear growth of 8% per year

· Online and direct-to-consumer growth to 14% per year

· Open 645 stores in the next five years

Let's take a look at how the company is executing on these plans so far. In the company's latest quarter, they saw revenue up 5%, Outdoor and Action Sports revenue up 6%, International up 7%, and Direct-to-Consumer up 14%. The company announced a 4-to-1 stock split as well, and they drove their dividend up over 20%. So far, the company is still coming up a bit light on their five-year plans, but these plans were for five-year rates, and they are only a few months into it.

The company noted in their earnings call that they were pleased with their execution so far and actually were executing ahead of schedule. In our last update, we were guiding for operating income to come in at $2.55B by 2017, taxes at 25% per year, depreciation at $300M by 2017, capital expenditures to $500M by 2017, and available cash flow to $1.67B by 2017.

After the latest earnings our expectations are for 2017 operating income to be at $2.64B versus our previous expectation at $2.55B as operating margin looks likely to be at around 15.5% in 2017, slightly higher than our original expectation. The company is increasing margins at a slightly faster rate than we had expected. With these changes and the strong execution, our model now prices VFC at $340 price target, meaning there is a ton of upside left in shares over the next twelve months.

Step 1.

Project operating income, taxes, depreciation, capex, and working capital for five years. Calculate cash flow available by taking operating income - taxes + depreciation - capital expenditures - working capital.

2013 Projections

2014 Projections

2015 Projections

2016 Projections

2017 Projections

Operating Income


















Capital Expendit.






Working Capital






Available Cash Flow






Step 2.

Calculate present value of available cash flow (PV factor of WACC * available cash flow). You can calculate WACC, but we have given this number to you. The PV factor of WACC is calculated by taking 1 / [(1 + WACC)^# of FY years away from current]. For example, 2016 would be 1 / [(1 + WACC)^4 (2016-2012). WACC for VFC: 7.1%






PV Factor of WACC






PV of Available Cash Flow






Step 3.

For the fifth year, we calculate a residual calculation. Taking the fifth year available cash flow and dividing by the cap rate, which is calculated by WACC subtracting out residual growth rate, calculate this number. Companies with high levels of growth have higher residual growth, while companies with lower growth levels have lower residual growth. Cap Rate for VFC: 4.1%


Available Cash Flow


Divided by Cap Rate


Residual Value


Multiply by 20167PV Factor


PV of Residual Value


Step 4.

Calculate Equity Value - add PV of residual value, available cash flow PVs, current cash, and subtract debt:

Sum of Available Cash Flows


PV of Residual Value


Cash/Cash Equivalents


Interest Bearing Debt


Equity Value


Step 5.

Divide equity value by shares outstanding:

Equity Value


Shares Outstanding


Price Target


Company News

Today, in our company news section, we want to take a look at 3D Systems. The company continued to execute in its latest earnings report, and investors have been bidding it higher. The company made another breakout higher today on the back of its consumer-focused 3D scanner Sense, which is much cheaper than the Stratasys' Digitizer at $1400. In our latest report, we were worried about DDD due to their ability to appeal to the consumer as Stratasys (NASDAQ:SSYS) had MakerBot, which is a premier consumer-based 3D printer. To get to a $65 price target in our model, DDD has to execute the following:

We will provide you with the model that would get us a $65 price target. We would need to see operating income grow to $450M by 2017 in our model. If we keep operating income around the same level and even increase it to 20% of revenue, it would mean that DDD would need to make $2.3B in 2017 - 535% growth over FY12 revenue. While we believe that 3D printers are exciting business, there is heavy competition in this arena and the company would need a very successful consumer uptake by 2017 to even come close to those levels. 3D printing, though, is still not ready for consumers. The printers are currently over $10000, but the low-end printers cannot do what these high-end printers can do.

In the latest quarterly earnings, the company raised FY revenue to $500M - $530M, still quite far from what the company needs to earn to really be at the levels it is right now. The company has a lot of excitement right now, but we still do not change our current target from $36 with a Sell-rating. The report shows solid growth as we have constantly expected, but the key as we have noted is the consumer side of the business only added $13.5M. In order to reach the goals expected, the company will need to see consumer revenue around $300M - $400M per quarter and $1.2 - $1.5B per year. The company is on back to be at around $40M this year. The company is expanding to 400 stores and has plenty of opportunity with its online channels. The problem still remains expectations are pricing in a better than can be expected target, and with our company based in value to growth investing, we cannot recommend DDD still.

Market Chart Overview

The S&P 500 (NYSEARCA:SPY) is having trouble with the 1770-1780 area at the top of this channel. It is following this channel higher, and the stock has to cleanly break 1780 to see further upside from here. Support is at 1750.

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The Dow Jones (NYSEARCA:DIA) has gone from worst to best of the indices with strength breaking the 15600 level and strong support at the 15500 and 15250.The index is in a strong upward channel with current resistance sitting at 15800.

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Economic Data

There was no economic data for the market to digest today nor is there any tomorrow. The data does not get started until Wednesday, but it is a very light week for the market overall as far as data is concerned.

Foreign Markets

Asia - Asian markets were mostly higher after a solid round of data from China showed a sizeable jump in industrial production and retail sales. Further, the data showed a slower growth to inflation than was expected. The markets, though, are cautious heading into Tuesday's conclusion of the Third Plenum for the Communist Party, which will lie out long-term plans for the country based on government policy. That news has the potential to have a large impact on the stock markets in Asia and beyond.

Europe - European stocks were up as well this morning, reacting positively to the data in China. There were no major data points in Europe today, but a number of companies were looking very good. BT Group was up after the company bought the rights to Champions League and Europa League. That news sent shares of British Sky much lower. Lonmin was up after the platinum miner swung to a profit. Overall, Europe continues to benefit from its bottoming out process and potential for a 2014 turnaround.

Fed Outlook

The Fed has a big week with Janet Yellen's testimony on Thursday as it should be the biggest market moment of the week, but before then, we get two Fed speeches tomorrow as well as Chicago Fed National Activity index. The Fed speeches come from Lockhart and Kocherlakota. Watch the latter speech, as Kocherlakota has been dovish. He is a good heartbeat of what Bernanke and Yellen are likely thinking.

Tomorrow's Outlook

The market should see most of its action coming from the conclusion of the Third Plenum of the Communist Party in China. The party is expected to announce a ten-year plan for the country given government objectives, which will have a major impact on those markets and the USA. The expectations are tightening of policy to reduce inflation and make it a cleaner process higher for the market, but we will see what happens.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: I have no business relationship with any company whose stock is mentioned in this article. The Oxen Group is a team of analysts. This article was written by David Ristau, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.