VF Corporation’s Relative Valuations and Returns Versus Its Peers

VF Corporation Beats 2Q15 Estimates after Three Straight Misses

(Continued from Prior Part)

Stock price reaction to VF Corporation’s 2Q15 earnings

Despite VF Corporation’s market-beating results and upbeat earnings outlook, VFC stock fell 0.2% to $74.50 on July 24 after the results were released. VFC stock is down 0.5% in 2015 year-to-date.

Stock prices for peers like Nike (NKE), Columbia Sportswear (COLM), and Lululemon Athletica (LULU) also fell on July 24. So did the S&P 500 Index (SPY) (IVV) (VOO) on disappointing new home sales data.

Shareholder returns

VFC has been one of the worst performers among its peers in terms of total shareholder returns this year. VFC returned 0.4% year-to-date. Here’s what its peers did in comparison:

• Nike (NKE) returned 18.2%.

• Lululemon Athletica (LULU) returned 9.8%.

• Columbia Sportswear (COLM) returned 34.7%.

• Under Armour (UA) returned 41.5%.

VFC has been a more consistent performer over a five-year span. It has had total annualized shareholder returns of 32.9% compared to 22.1% for the S&P 500 Consumer Discretionary Sector Index (XLY).

Relative valuations

VFC is trading at a forward PE (price-to-earnings) ratio of 22.1x, ahead of the S&P 500 Index (SPY) at 17.6x and the S&P 500 Consumer Discretionary Sector Index (XLY) at 20.5x. However, valuations are trailing most peers with the exception of Wolverine Worldwide (WWW) and Deckers (DECK) with forward PEs of 17.3x and 13.8x, respectively.

Under Armour (UA), Lululemon Athletica (LULU), and Nike (NKE) remain the most expensive with forward PEs of 82.4x, 30.6x, and 27.1x, respectively. Returns and valuations are as of July 24.

Future headwinds

While most of VFC’s product lines appear to be resonating well with consumers (XLY) (FXD), the company hasn’t been able to shake off the impact of an appreciating US dollar. As an established company with some brands that have been around for decades, it’s unable to grow its top line as much as its younger peers.

As mentioned earlier, most of VFC’s overseas currency exposure comes from the euro, which has been in sharp decline against the US dollar in 2015. This could prove to be a future headwind as the Fed approaches a rate hike, as global growth fears grow, and as uncertainty over China and Greece prevail.

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Browse this series on Market Realist:

• Part 1 - VF Corporation Beats 2Q15 Estimates after Three Straight Misses

• Part 2 - VF Corporation’s $2 Billion Brands Support 2Q15 Sales Increase

• Part 3 - VF’s Jeanswear and Sportswear Segments See Mixed Trends