Shares of V.F. Corporation (VFC) touched a new 52-week high of $200.55 on Friday, Jul 12, 2013 and eventually closed trade at $199.56. The stock has gained momentum since the company announced its 5-year initiatives and strategies to boost shareholder returns. This global apparel retailer has amassed a year-to-date return of 34.1%.
Average volume of shares traded over the last 3 months was approximately 512K. Moreover, the company currently trades at a forward P/E of 18.4x, a 1.9% premium to the peer group average of 18.05x. The last traded price is 0.6% above the Zacks Consensus average analyst price target of $198.43. Additionally, the company’s long-term estimated EPS growth rate is 11.7%.
Investors became more optimistic on this Zacks Rank #3 (Hold) stock after the company outlined its key financial targets through 2017 at an investor meet held on Jun 11. Its announced goals are aimed at driving strong cash flow, and consequently funding acquisitions, dividends and share repurchases.
As part of its key financial targets, V.F. Corp. expects to increase revenues to $17.3 billion by 2017, recording a 5-year compounded annual growth rate (CAGR) of 10% – including 8% organic growth and 2% growth from acquisitions. Earnings per share through 2017 are projected to reach $18.00, reflecting a 5-year CAGR of 13%.
The company now expects gross margin to jump 300 basis points (bps) to 49.5% in 2017 from 46.5% in 2012. Operating margin for 2017 is likely to increase to 16%, rising 250 bps from 13.5% in 2012.
The growth in the company’s margins will likely drive annual cash flow from operations to $2.4 billion by 2017, with cumulative cash flow generation of $9.5 billion from 2013 to 2017. Based on such strong cash flow projections, the company expects a dividend payout rate of 40%, annual total shareholder return of more than 15% and return on invested capital of 20% by 2017.
The company’s history of positive earnings surprises has made investors upbeat on the stock. We observe that V.F. Corp. has beaten the Zacks Consensus Estimate in the past 10 quarters by an average of 7.5%.
V.F. Corp.'s diversified brand portfolio and its brand management – with focus on developing its brands further – position the company more advantageously than its peers. Given the strength of many of its brands and the opportunities in distribution, we believe that V.F. Corp. is well poised for long-term growth.
Apart from V.F. Corp., other retail stocks such as The Gap, Inc. (GPS), Big 5 Sporting Goods Corp. (BGFV) and Conns Inc. (CONN) achieved new 52-week highs of $45.37, $24.00 and $58.40, respectively, on Jul 12, 2013.
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