After a long winter that will be remembered for a remarkable amount of snowfall here in the northeast, it appears that spring has finally arrived in Vermont. The last of the snow finally melted in most places before Easter.
Now is the time of year when many of us unpack our spring and summer clothes, tune up our bikes, and prepare our boats for the water. And it's the time of year when we again consider what new items we need to buy in order to enjoy our many outdoor hobbies.
The U.S. economy continues to improve on a national level, with unemployment at 9% and the economy adding roughly 240,000 jobs last month. Here in Vermont, the jobs picture is even brighter, with unemployment far below the national average at just 5.4%. With unemployment continuing to fall, many people are now feeling more secure in their jobs. This, combined with a continued rise for the stock market has created a "wealth effect". This means that people feel better off due to the increase in their investment and retirement accounts.
When people feel more secure in their jobs and wealthier, they tend to spend more. For example, in March consumer spending inched up one-half percentage point. This slow return to increased consumer spending is positive news for retailers. Companies that make outdoor apparel and other sporting-related merchandise seem to be cashing in on the return of the post-recession consumer.
Most people are familiar with many of the brands we associate with outdoor apparel and gear, including K2, North Face, Patagonia and REI. However, you'll have trouble getting a stock quote for any of these companies because none of them are publicly traded. Some remain privately-held companies, while others have been bought up by holding companies that own multiple brands focused on selling to the outdoor activities markets.
For investors, this makes it a little more difficult to find potential opportunities for investment since there are limited stand-alone sporting companies that are publicly listed on a stock exchange.
My search for compelling outdoor stocks began with a focus on companies with a primary business in outdoor apparel or equipment, including manufacturers and retailers. I was ultimately looking for a high quality outdoor company with the potential for financial growth that will reward shareholders in the years to come.
Until very recently, I had never heard of V.F. Corp (NYSE: VFC). The North Carolina outdoor apparel company is largely unknown and unheard of among consumers and investors alike. It's no longer a small cap, but its dividend, its still relatively small size (around $10 billion market cap), and its growth prospects make V.F. Corp. very attractive. And if you're someone who enjoys the outdoors, I would be willing to bet that you own something made by this company.
V.F. Corp makes active apparel, denim, and daypack products under 30 well-recognized brands including Lee, JanSport, Nautica, The North Face, Vans, and Wrangler. The company designs and manufactures products under these and other lifestyle brands both in the U.S. and overseas. Since being founded in 1899, V.F. Corp. has expanded and matured over the years. A primary driver of the company's historic growth has been acquisitions of leading brands, including Lee Jeans and many other brands the company owns today.
Over the next five years, V.F Corp plans to grow its sales by 10% annually, from $7.7 billion last year to over $12.7 billion by 2015. Earnings per share are expected to increase at a more rapid pace of 12% annually, according to management.
Moving forward, the company expects a large portion of its growth to come from international sales, including emerging market countries like Brazil, China, India, and Mexico. While V.F. remains headquartered in the U.S., over 30% of its sales today come from overseas.
For investors, international exposure is likely to help fuel the growth in the company as the expansion in the middle to upper classes in the developing world grows. In addition to growth overseas, V.F. plans to sell more products directly to consumers, largely through its 780 existing and new storefronts, and online.
The future appears bright for V.F., and past performance indicates that management is likely to deliver on its promises to shareholders. Last year, sales rose 7% and full year adjusted earnings per share (EPS) increased 25%.
These strong results led to positive cash from operations of over $1 billion last year, and allowed the company to increase its quarterly cash dividend. With the dividend currently at $2.52 on an annual basis, the yield from this stock is a healthy 2.6%. Income investors should also note that since the company began paying a dividend back in 1986, it has never reduced or eliminated its dividend. Such performance over a 25-year period is enviable.
With shares of V. F. Corp (NYSE: VFC) currently trading just under $100, this outdoor stock is valued at 14-times 2011 earnings estimates. It appears that shares are undervalued relative to the stock market as a whole. For investors, there is likely upside to the stock as the management team continues to execute on its growth plans.
Just recently S&P reiterated its Strong Buy rating on V.F. shares, and increased its price target to $120 per share. S&P believes that V.F. Corp shares will rise in 2011 due to strong financial performance and believes shares are undervalued based on the current price-to-earnings ratio.
This spring, lovers of the outdoors might benefit from investing in shares of V.F., which could see its shares rise by 20% in the next year according to S&P. And for income investors, they'll find the added bonus of a healthy 2.6% cash dividend.