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VF Corp: A Low-Risk Fashion Bargain Opportunity

Shares of VF Corp. (NYSE:VFC) have gone on sale. While customers chase the company's popular fashion name brands such as Vans, The North Face, Timberland, Dickies, Eastpak, Supreme and more, the stock is down 21% year-to-date.

VF Corp: A Low-Risk Fashion Bargain Opportunity
VF Corp: A Low-Risk Fashion Bargain Opportunity

Its shoes and clothes are casual but never frumpy, lively but not overheated, practical but stylish (to borrow an expression from Harvey Steiman). Many of the brands are cultural touchstone, enticing across generations. My non-scientific survey of my college students found more than half were wearing or owned Vans that day. With such popular brands on sale, should investors be queing up to take advantage of this deal?

Shares on sale

In my opinion, VF Corp. shares are a bargain at the current $23.2 billion market cap, 16.23 price-earnings ratio and dividend yield of 3.42%. Short Interest remains low at 3.47%. Shares of the company are not likely to hit their previous highs upwards of $90 any time soon, but due to brand strength, I believe it is only a matter of time, and investors get a decent dividend while they wait.

According to my estimates, the stock has an upside of about 28%. My price target is in the mid-$70s. Wall Street analysts have issued an even more bullish price target, with the average estimate at $90 over the next 12 months. This forecast is too optimistic with the headwinds VF Corp. faces.

The opportunity has already passed to pay less than the $52 per share when the stock bottomed to in early March. That was the lowest share price in a year. Insiders sold a lot of shares in 2020 and 2021. They began buying shares again this year worth $361,500 when shares tumbled to the $57 to $58 range. Insiders own less than 1% of shares. Despite hedge funds slightly decreasing their holdings last quarter, institutional ownership exceeds 83% of the shares (down from 84.56% at the end of 2021).

VF Corp. has a GF Score of 63 out of 100. It is profitable and has middling ratings for financial strength and momentum, with a slightly lower than average GF Value score and no rating for growth.

VF Corp: A Low-Risk Fashion Bargain Opportunity
VF Corp: A Low-Risk Fashion Bargain Opportunity

Recent earnings results

In January, the company reported the earnings results for its third quarter of fiscal 2022, including non-GAAP earnings per share of $1.35, which beat estimates by $0.13. They reported revenue growth of 22% year-over-year, with the top line also beating estimates by 10%. VF Corp. was on the road to recovery when new variants of Covid-19 spread to worrisome numbers war broke out in Ukraine.


Another reason for VF Corp.'s share price drop is its lackluster guidance. Management is forecasting a drop in full fiscal year 2022 revenue to $11.85 billion from $12 billion in fiscal 2021. That is far less a drop than the fiscal 2021 decline of 30%, but still, it continues a downward trend. The company expects the adjusted gross margin to drop to 55% from 56% in a previous forecast.

The consensus among Wall Street analysts is that the fiscal 2022 fourth-quarter earnings per share will be $0.47, which is higher than in the same quarter last year (which amounted to $0.27). The next report date was announced for May 19, 2022.

Other headwinds to watch for include longer than expected supply chain disruptions. China and several Southeast Asian nations are re-instituting Covid lockdowns as cases surge. China was hoped to generate 8% of company revenue, but that might be optimistic for this year. The spending habits of Asian consumers is resuming slower than the company expected. Working conditions in the garment industry suffer from fresh Covid outbreaks resulting in labor shortages, slower deliveries and rising costs.

The war in Ukraine is disrupting sales in eastern European countries as well, especially Russia, where VF Corp. shuttered company-owned retail locations. According to the company, VFs business in Russia and Ukraine is not material and makes up significantly less than 1% of the companys total annual revenue.


I believe this is a stock with long-term investment appeal, and short-term headwinds are just providing a lower entry point. VF Corp.'s name brand strength and strong management make it low-risk. The dividend yield is competitive.

Full disclosure, though: I myself no longer own the stock. I sold my shares at a much higher price, but also paid a higher price for them in the past. I bought at a bad time. Nowadays, the stock looks cheap, the consensus among Wall Street analysts is bullish and VF Corp. seems like a low-risk long-term opportunity.

This article first appeared on GuruFocus.