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Brean Capital Downgrades VF Corporation to ‘Hold’

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Jul. 18 2016, Published 12:12 p.m. ET

Price movement

VF Corporation (VFC) has a market cap of $27.0 billion. It fell by 1.1% to close at $64.03 per share on July 15, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -0.03%, 2.7%, and 4.1%, respectively, on the same day. VFC is trading 2.0% above its 20-day moving average, 2.8% above its 50-day moving average, and 1.6% above its 200-day moving average.

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Related ETF and peers

The PowerShares DWA Momentum ETF (PDP) invests 1.0% of its holdings in VF Corporation. The ETF tracks an index of 100 US-listed, large- and mid-cap companies selected and weighted by relative stock performances. The YTD price movement of PDP was 3.6% on July 15.

The market caps of VF Corporation’s competitors are as follows:

  • Gap (GPS)—$9.2 billion
  • Ralph Lauren (RL)—$8.2 billion
  • Columbia Sportswear (COLM)—$4.3 billion

VF Corporation’s rating and performance in fiscal 1Q16

Brean Capital has downgraded VF Corporation to “hold” from “buy.” VF Corporation reported fiscal 1Q16 revenues of $2.839 billion—a rise of 0.07%, as compared to its total revenues of $2.837 billion in fiscal 1Q15.

Its net income and EPS (earnings per share) fell to $260.3 million and $0.61, respectively, in fiscal 1Q16, as compared to $288.7 million and $0.67, respectively, in fiscal 1Q15.

VFC’s cash and cash equivalents fell by 38.0%, and its inventories rose by 9.3% in fiscal 1Q16 over fiscal 4Q15. Its current ratio fell to 1.6x, and its debt-to-equity ratio rose to 1.0x in fiscal 1Q16, as compared to 2.1x and 0.79x, respectively, in fiscal 4Q15.

Projections

The company has made the following projections for fiscal 2016:

  • revenue to increase at a mid- or single-digit rate, which includes an ~1% negative impact from changes in foreign currency
  • gross margin to improve by about 0.50% to 48.8%, which includes about 0.70% of headwinds from changes in foreign currency
  • operating margin of 14.4%, which includes a negative foreign currency impact of ~0.70%
  • EPS growth of 11% on a currency-neutral basis
  • cash flow from operations reaching $1.3 billion

In the next part of this series, we’ll discuss Harley-Davidson.

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