V.F. Corp.: Be Ready To Pick Up Shares Below $70

| About: V.F. Corporation (VFC)

Summary

V.F. Corp's shares trade almost 10% below their 52-week high.

The company delivered strong results despite FX headwinds in Q1 2015.

Considering future growth, this stock is very cheap.

Keep ready to buy or add shares below $70 per share.

The stock market seems to be cooling down a bit after several years of great returns. Even FED chairwoman Janet Yellen said the stock market in general seems to be quite expensive. However, investors still have multiple opportunities to pick up quality stocks at discount prices, even in the current quiet market. In the case of V.F. Corp (VFC), it could not be any clearer. This stock currently trades just above $70 per share, over 10% below its 52-week high of $77.83 per share. In this article, I will argue that V.F. Corp's outlook is very promising and that the company's valuation is very attractive.

Despite major foreign currency headwinds, V.F. Corp was able to report revenue growth of 2% and stable earnings per share in the first quarter of 2015. On a currency neutral basis, revenue would have been up 8% and earnings per share 13% compared to the first quarter of last year. These results are very promising, especially since foreign currencies are moving in a favorable direction. For example, the US dollar lost some of its strength compared to the Euro and currently trades almost 7% lower compared to two months ago. This will have a favorable effect on V.F. Corp's true earnings in the remain quarters of this year.

Further, V.F. Corp is still growing at quite an impressive pace. The company's most important segment in terms of both revenue and operating profit is Outdoors & Action Sports. This segment delivered very growth rates as revenue grew 10% and operating profit grew 7% in the first quarter of 2015 compared to last year. Also, the company reported very strong direct-to-consumer sales. Traditionally, these sales have better margins than regular sales. Further growth of the Outdoors & Action Sports segment and direct-to-consumer sales will be, apart from foreign currency headwinds, a big boost for V.F. Corp's revenue and earnings per share in the upcoming quarters.

As a result, it may not come as a surprise that analysts expect V.F. Corp's earnings per share to grow over 20% by the end of 2016. For 2016, analysts expect V.F. Corp to realize earnings per share of $3.69 per share. Considering the current share price of $70 per share, V.F. Corp trades at a forward P/E ratio of 18.97. As I mentioned in this article, I consider V.F. Corp a sports and outdoor company. Looking at the valuation of sports apparel peers, I find that V.F. Corp's forward P/E ratio is also much lower than most of its peers, including Nike (NYSE:NKE), Under Armour (NYSE:UA) and Deckers Outdoors (NASDAQ:DECK). An overview of V.F. Corp's competitors is shown in the table below.

Stock 2016 EPS Share price Forward P/E
Nike $3.95 $102.16 25.86
Under Armour $1.42 $77.35 54.47
Deckers Outdoors $5.09 $72.24 14.19
Average P/E 31.51

Source: Yahoo Finance

Moreover, V.F. Corp is an overlooked stock when it comes to its potential dividend yield. The company's current yield of 1.8% might not be the biggest dividend yield available. However, V.F. Corp has great potential growing its dividend in the upcoming years. First of all, V.F. Corp has a strong free cash flow. According to V.F. Corp's latest full-year report, total free cash flow was $1.46 billion in 2014. The company did only pay $479 million in dividends, a pay-out ratio of 32.8%. Let's assume V.F. Corp paid half of its free cash flow in dividends instead of just a third, than the company's yield would be a much more attractive 2.7% instead of 1.8%.

Conclusion

Based on my findings above, I consider V.F. Corp a great buy trading around $70 per share. The company's growth scenario is still intact and apart from foreign currency headwinds, both revenue and earnings per share are likely to grow with double-digit figures in the next couple of years. Further, V.F. Corp trades at an attractive value, considering the average valuation of sports apparel peers like Nike, Under Armour and Deckers Outdoors. Therefore, I am looking to add to my position if the share price falls below $70 per share.

Disclosure: The author is long VFC.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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