Shares of diversified apparel firm V.F. Corp (NYSE:VFC) have been quick to retreat following the one-two punch to the gut of investors that saw CEO Steve Rendle depart alongside a freshly lowered full-year forecast. Revenue is now expected to rise 3-4%, down from 5-6%. In addition, earnings are expected in the $2.00-$2.20 per share range, down from $2.40-$2.50. As the stock looks to retest multi-year lows, questions linger as to how the firm will hold up in a recession and if it can sustain its now 7%-yielding dividend.
Wall Street analysts quickly lowered VFC stock’s price target this week, with one of the biggest downward revisions coming courtesy of Deutsche Bank (NYSE:DB), which slashed its target to $36 from $43.
Indeed, VF Corp is up against it as we head into the holiday season. With growing fears of an economic recession, lingering inflation, and no signs of a so-called Santa Claus rally, it seems easy to ditch VFC stock while it’s down and out, with the latest round of negative news in the books.
CEO Departure Leaves Many Questions Unanswered
A CEO departure is never a good sign, especially if it surprises investors amid rising economic worry and softening results. CEOs are supposed to be captains of a ship that can best steer a firm through the turbulent seas. Unfortunately, a headwind hurricane could be on the horizon, and there isn’t as much clarity as to who will be next up to take the reigns in what seems to be a ship with many holes. VF board member Benno Dorer will serve as interim CEO until the firm finds someone to fill Rendle’s seat.
In any case, the recent 15% downward move in VFC stock seems excessive, given the stock has already shed around 66% of its value during VFC stock’s November peak. Despite all the negativity over the past week, I remain bullish on VFC stock.
The nearer-term outlook may be grim, but I’m a fan of the brands and the depressed valuation, which paints a prettier longer-term picture for new investors looking to get in at these depressed prices.
The Bar is Set Low for VFC Stock
A massive haze of uncertainty surrounds VF Corp. as the hunt for a new top boss begins amid the stock’s downward spiral. With not much to look forward to in the new year and so much negative momentum behind the name, it’s tough to be a dip-buyer here. That said, it’s hard to overlook the depressed valuation after the latest perfect storm of bad news.
At writing, the stock trades at just 1.0 times sales and 3.7 times book value, both of which are below the apparel and accessories industry average of 4.7 and 7.6 times, respectively. At 26.9 times trailing earnings, the outerwear juggernaut is also trading at a mild discount to the industry average of 27.5 times.
As a discretionary retailer, VF already has some degree of earnings erosion baked in for 2023. It’s tough to tell if VF can jump over an already lowered bar set by analysts. Regardless, I think investors are losing sight of the longer-term growth story at hand. An economic downturn will always act as a bump in the road for VF. Looking years out, the firm may still be able to hit targets outlined in its 2022 investor event. The company sees mid-to-high single-digit growth alongside 15% operating margins for Fiscal Year 2027.
At these depths, many may doubt VF’s abilities, but as the firm moves past transitory headwinds, investors willing to give the firm the benefit of the doubt could have a lot to gain. The power of VF’s brands seems heavily underestimated at this juncture. The North Face, Timberland, Dickies, Jansport, and Supreme are all terrific brands that give VF a powerful positioning in the outdoor apparel space.
Is VFC Stock a Buy?
VFC stock has a Hold consensus rating based on five Buys, 11 Holds, and three Sells assigned in the past three months. The average VFC stock price target of $32.35 implies 12.44% upside potential.
Conclusion: VFC Stock Could be a Compelling Deep Value Play
There’s too much negativity surrounding VFC stock here. Despite the unknowns, the valuation and strong brands make for a compelling deep-value, bounce-back play for the new year.
Nike (NYSE:NKE) is another apparel play with a strong brand that hasn’t been able to steer clear of this year’s slate of headwinds. The stock got hit with a 53% haircut before bouncing back over 30%.
It’s too early to tell if VF’s tough week is a sign of things to come for the apparel plays. Regardless, risks of a pullback seem high for names in the space, like Foot Locker (NYSE:FL), that have surged double-digit percentage points off their recent lows.
