On Wednesday, Guggenheim maintained its Buy rating on shares of VF Corp (NYSE:VFC) and increased the price target to $27 from the previous $25. The firm's analyst highlighted three main reasons for the positive outlook towards the apparel company: expected top-line improvement, better operating margins, and ongoing balance sheet deleveraging.
Currently trading at $20.85, InvestingPro analysis indicates VF Corp is undervalued, with the stock showing impressive momentum through a 55.44% return over the past six months.
The analyst noted that despite a revenue decline of approximately $2 billion over the past two years, VF Corp is showing signs of stabilization and growth reinvigoration under the leadership of CEO Bracken Darrell.
A key highlight is the successful collaboration between The North Face and SKIMS, demonstrating the strength of The North Face brand. The company maintains a solid gross profit margin of 52.21% and has notably maintained dividend payments for 54 consecutive years, showcasing its financial resilience despite challenges.
VF Corp's growth efforts are anticipated to result in a return to low single-digit percentage growth by the next fiscal year (FY26E). Projections indicate that if the company increases sales by 10% from FY24 levels, operating margins could reach 11.7%, and earnings per share (EPS) could climb to $2.65 by FY28E.
Moreover, should VF Corp achieve a compound annual growth rate (CAGR) of over 4%, EPS could surpass $3.00 by FY28E. InvestingPro subscribers can access detailed financial health scores and additional insights, with 8 more key ProTips available for this stock.
Incorporating VF's debt repayment strategy and lower interest expenses into the analysis, the analyst suggests that the company's financial targets, which do not rely on incremental revenues from FY24, present additional potential for growth through cost leveraging.
With a sales and general administrative (SG&A) cost structure of 55% fixed to 45% variable, VF Corp could see a significant increase in operating margins for every 10% of sales growth.
The firm's estimates remain above consensus, and they anticipate an upside to the consensus EPS estimates of $0.46 for FY25 and $0.95 for FY26. The new price target represents nearly a 30% upside from the current stock levels.
In other recent news, VF Corp has seen a series of significant developments. TD Cowen raised VF Corp's price target to $24, citing the company's successful debt reduction and comprehensive transformation strategy. The analyst believes that with a 10% EBIT margin and low-single-digit incremental revenue growth, the company's earnings per share could surpass $2 by fiscal year 2028, generating roughly $700 million in free cash flow.
The company has also outlined medium-term financial goals, including an adjusted operating margin of at least 10%, an adjusted gross margin of at least 55%, and an adjusted SG&A as a percentage of revenue of 45% or lower. These targets are part of VF Corp's strategic plan to enhance profitability and shareholder value.
VF Corporation (NYSE:VFC) reported a year-over-year revenue decline of 6% for Q2 of fiscal year 2025, an improvement from the 10% decline in Q1. The company's gross margin increased to 52.2%, and operating income stood at $315 million. VF Corporation's diluted earnings per share were noted at $0.60, slightly down from the previous fiscal year.
In a strategic move, VF Corporation divested Supreme, generating net proceeds of about $1.5 billion and repaid $1 billion of term loans. The corporation also achieved $65 million in cost savings in Q2, amounting to $300 million for the fiscal year.
For the upcoming quarters, VF Corporation projects Q3 revenue between $2.7 billion and $2.75 billion, with a decline of 1% to 3% year-over-year. These recent developments demonstrate VF Corporation's ongoing efforts to strengthen its financial health and prepare for future growth.
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