It didn’t matter that the broader market was tanking in early February, falling 10% in just 10 days. VF Corp (NYSE:VFC) was determined to power higher, up more than 12% just six weeks into 2018. Then, the company reported earnings and VFC stock plunged.
Now up just 0.7% on the year (and a disappointing 0.33% over the past three years), what should investors do?
VFC Stock Sold Off After Earnings
It’s no surprise that shares sold off, given the negative VFC news following its earnings release. The company missed on earnings per share and revenue results. That’s a no-no when a stock’s trading at all-time highs — even if VF Corp did post some impressive fourth-quarter numbers.
It’s worth pointing out is that VF Corp bought Williamson-Dickie (WD) — maker of Dickies — back in August 2017 for $820 million. The most recent quarter was the first inclusion of that deal, helping VFC to post 20% year-over-year (YOY) revenue growth. Excluding WD though, VF Corp still grew revenue a very respectable 11.8%.
Overall, earnings grew just 5% in 2017 and 7% for the year if you include the WD impact. Earnings grew 4%, and 7% if you exclude currency and tax impacts.
For the upcoming quarter, management expects revenue to grow 16%, including the WD impact. Ex-WD, sales should climb in the high-single-digits, management says. Adjusted earnings should grow 27% to 65 cents per share next quarter, with only 2 cents per share coming from the WD deal.
Phew… so how does VFC stock stack up following earnings?
Valuing VFC Stock
Analysts expect earnings per share of $3.13 for fiscal 2018, up 5% from 2017’s $2.98 per share result. In fiscal 2019 though, estimates call for accelerated growth of 11% from 2018.
On the sales front, analysts expect $12.22 billion in revenue for 2018. This would represent 3.5% sales growth from 2017. In 2019, expectations call for 8.7% growth. Noticing that earnings growth slightly exceeds sales growth for both years, the expectation then points to VFC widening its margins, another positive for the bulls.
So what are we paying for all this? VFC stock trades at about 24 times 2018 earnings estimates. Honestly that seems a bit rich given the company’s growth profile for the full year.
Why pay 24 times for a mid-single-digit earnings grower? Even though they’re not in the same sector, you could buy another consumer products company — Apple Inc. (NASDAQ:AAPL) — for a lot less of a premium and a lot more growth. While the VFC stock dividend pays out a 2.5% yield to Apple’s 1.5% yield, the latter will boost its return next month.
So ultimately, where does that leave VFC? To be honest, the valuation is too high by traditional standards. But it’s really tough to find a company in retail that’s growing as well as VFC. The YOY results for the next few quarters are going to be quite strong and it wouldn’t surprise me if VFC continues to rally higher as a result.
Trading VF Corp
Just how far could it rally?
Technically speaking, VFC stock could give its former all-time high near $84 a run for its money. Hit about a month ago, VFC stock has been consolidating nicely after its mid-February decline.
In fact, VFC stock is a very tradable name.
On the chart, you’ll see its perfect basing setup from late-2014 to early-2017 as support (blue line). Above that, you’ll notice $70 to $72.50 was a big level of resistance (black lines). Once that level gave way though, VF Corp was able to rally significantly to new highs. This put the stock in overbought territory, as noted by the chart’s blue circle up top.
Click to Enlarge
What makes this chart so encouraging though is the fact that VFC stock pulled back from its highs, and found support near its former resistance. I love these setups, because the risk/reward is so well-defined.
So long as these black lines hold as support, investors can stay long VFC stock and look for a retest of its former high.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a position in AAPL.
