This is my last stock pick for 2011 and it’s a bullish call on VF Corporation. The DJIA, SP500, and Nasdaq indicies all look like the Santa Claus Rally is underway now. For how long this rally will last is hard to say with all of the economic uncertainty globally currently, but I think on selective case by case basis some stocks will do very well in 2012 and possibly beyond. The VF stock chart is in a very nice uptrend, and the fundamentals of strong quarterly earnings surprises are showing in the chart making VF a very nice low-risk high-reward buy-long position this week.
On October 28 Zacks Investment Research reported that VF Corporation carried its momentum into the third quarter and knocked it out of the park once again. The company delivered its 8th consecutive positive earnings surprise on 16% organic revenue growth.
Management raised its guidance for the remainder of 2011, and earnings estimates have been soaring, sending the stock to a Zacks #2 Rank (Buy).
The company also hiked its dividend by 14%, marking its 39th straight year of higher dividend payments.
Third Quarter Results
VF Corporation reported its third quarter results on October 24. It was another excellent quarter for the company. Earnings per share came in at $2.87, crushing the Zacks Consensus Estimate by 32 cents. It was a stellar 29% increase over the same quarter in 2010.
Revenues rose 23% to $2.750 billion, ahead of the Zacks Consensus Estimate of $2.620 billion. Revenue was boosted in part by the Timberland acquisition. However, organic revenue growth was still a remarkable 16%.
Each segment achieved strong revenue growth in the quarter. Its largest division, Outdoor & Action Sports, saw organic revenue growth of 22% driven by strong gains in its The North Face and Vans brands.
The gross margin did contract a bit in the quarter from 46.5% to 45.3% of sales, but this was somewhat offset by the leveraging of its fixed expenses.
These factors led to a 21% increase in operating income over the same quarter in 2010.
Following another strong quarter, management raised its guidance for the remainder of 2011. The company now expects earnings of $8.15 per share on revenue growth of 22-23%, up from prior guidance of $7.50 per share.
This prompted analysts to revise their estimates for both 2011 and 2012 significantly higher, sending the stock to a Zacks #2 Rank (Buy).
Analysts expect the strong business momentum to continue for at least the next couple of years. Based on consensus estimates, analysts project 27% earnings growth this year and 15% growth next year.
As you can see in the company's Price & Consensus chart, consensus estimates have been soaring over the last several months as the company has delivered 8 consecutive positive earnings surprises:
In addition to strong earnings growth, VF Corporation pays a dividend that yields a solid 2.1%. The company announced in its third quarter release that it was increasing its quarterly dividend by 14%.
This marks the 39th consecutive year of higher dividend payments.
The Bottom Line
With earnings momentum accelerating and strong growth and income characteristics, VF Corporation still offers plenty of upside potential.
Buy VF Corporation – Ticker VFC
Buy Entry: 122.99 to 129.13
Take Profit Areas: 142.89 to 149.09, 154.71 to 161.63, 169.25 to 176.51
V.F. Corporation designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. The company offers apparel, footwear, outdoor gear, skateboard-inspired and surf-inspired footwear, backpacks, luggage, handbags and accessories, outdoor apparel, travel accessories, and women’s active wear primarily under the Vans, The North Face, JanSport, Eastpak, Kipling, Napapijri, Reef, Eagle Creek, and lucy brands; and denim and casual bottoms, and tops principally under Wrangler, Lee, Riders, Rustler, and Timber Creek by Wrangler brands. Its products also include occupational, athletic, and licensed apparel primarily under the Red Kap, Bulwark, Majestic, MLB, NFL, and Harley-Davidson brands; men’s fashion sportswear, denim bottoms, sleepwear, underwear, as well as handbags, luggage, backpacks, and accessories principally under the Nautica and Kipling brands; and denim and casual bottoms, sportswear, accessories, men’s apparel and footwear, and women’s sportswear primarily under the 7 For All Mankind, John Varvatos, Splendid, and Ella Moss brands. The company sells its products to specialty stores, department stores, national chains, and mass merchants primarily through its sales force, independent sales agents, and distributors. V.F. Corporation was founded in 1899 and is based in Greensboro, North Carolina.
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