I was writing about VF Corp not far ago, as company published last financial earnings in February. Today I will have a quick look on 2021 Strategic Growth Plan, as either plan shows some weakness in business or I see no reason why share price dropped around 4% on the announcement day.

To make context:

Market cap $23b

Net debt $1.5b

 

Key points:

  • Revenue through 2021 is expected to grow at a five-year compounded annual growth rate (CAGR) between 4 percent and 6 percent, fueled by VF’s largest brands (the Vans®, The North Face® and Timberland® brands) and the company’s International and Direct-to-Consumer business platforms.
  • Gross margin is expected to reach 51.5 percent in 2021.
  • Operating margin is expected to reach 16.0 percent in 2021.
  • Earnings per share is expected to grow at a five-year CAGR of between 10 percent and 12 percent.
  • The company expects to generate more than $9 billion of cash from operations on a cumulative basis between 2017 and 2021 and return $8 billion to shareholders through dividends and share repurchases.
  • VF expects to deliver annual total shareholder return (TSR) in the 13 percent to 15 percent range as the company continues to target top quartile TSR performance.

 

Current valuation:

EV/EBITDA = 12,3

P/E = 18

 

So, assuming company will realize above targets (company is high quality and I expect it to realize targets, though if EPS CAGR will be 9% vs 10-12% expected it is still not so much difference for me) around $8b should be returned -> 35% of current market cap! Within 5 years it means 7% annual return to shareholders, not bad isn’t it? And at the end of the period EPS should be around 50-60% higher! OK some of this is due to buybacks and lower number of shares, but still, deduct only dividend and calculate multiple on expected growth rate and no one can deny that if targets will be realized then shareholders should make a lot of money.

So why was share price down by 4% that day?

Well I see no reason caused by strategy. It is quite optimistic and shows confidence of management. So there must have been some other factor. Well I see that day shares of Lululemon Athletica dropped a lot. This is athletic apparel retailer and in case of VC Corp outdoor clothes are important part of business. So I would rather connect weakness of VF with this, rather than strategy. If that’s true then it doesn’t make sense and seems like a buying opportunity.

 

Summing up, situation in VF Corp develops in the right direction and I am convinced that in the long term shareholders will be well rewarded. In short term – who knows?

 

Disclaimer VFC – long