On Wednesday, Stifel reiterated a Buy rating on VF Corp (NYSE:VFC), with a steady price target of $19.00, following the company's decision to sell the Supreme brand for $1.5 billion. The transaction is set to enhance VF Corp's capital structure by addressing maturing debt and is projected to improve leverage ratios to 3.4 times by the end of fiscal year 2025 and 2.3 times by the end of fiscal year 2026.
The sale price, while below Stifel's estimated brand value of $1.7 billion, is expected to mitigate downside risk for VF Corp. The proceeds from the sale are anticipated to be slightly dilutive to the company's earnings per share (EPS) for fiscal year 2025 by $0.08, but this could be less impactful when considering the potential for higher debt rates in a refinancing scenario.
Stifel's analysis suggests that VF Corp's equity value will now largely depend on the success of a turnaround for the Vans brand. The firm expresses confidence in the brand's prospects under new leadership, citing increased product innovation and more targeted marketing efforts. These strategies could potentially lead to a sales uptick in the December quarter of fiscal year 2025.
The valuation of VF Corp at a $19 price target takes into account the income from the sale of Supreme, alongside fair value assessments of the remaining brands within VF Corp's portfolio. However, the valuation also factors in the loss of contribution from Supreme, which was estimated to generate $573 million in revenue and $122 million in EBITDA after overhead in fiscal year 2025.
InvestingPro Insights
In light of Stifel's optimistic outlook on VF Corp, recent data from InvestingPro provides a mixed financial picture. With a market capitalization of approximately $6.3 billion, VF Corp's current P/E ratio stands at a negative 6.43, reflecting challenges in profitability over the last twelve months. However, the company's strong gross profit margin at 52.05% demonstrates its ability to maintain a significant portion of revenue after accounting for the cost of goods sold.
InvestingPro Tips highlight VF Corp's high shareholder yield and the expectation of net income growth this year. These insights suggest that the company's financial health may be improving, which aligns with Stifel's confidence in the Vans brand's turnaround. Additionally, the robust dividend history, with payments maintained for 54 consecutive years, could appeal to income-focused investors.
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