Avoid the Unfashionable Bargain That Is VF Corp

VF Corp  (VFC)  shares have fallen off a cliff to a nine-month low. The maker of The North Face, Timberland and Vans disappointed investors with third-quarter revenue that missed Wall Street's estimates. Earnings beat thanks to cost reductions but the company needs more growth to meet expectations for future quarters.

VF stock trades around $53 and is less than 2% from a new 52-week low. It has lost 15% in the past three months and 17% in six months. With the all-important holiday shopping season coming up, VF expects more revenue weakness, making this a cheap stock that is no bargain.

The company expects fourth-quarter revenue to be up just 2% to $12.2 billion, which would mark a decline from its prior guidance for 3% to 4% increase. It expects fiscal year 2016 earnings of $3.13 a share, compared to the company's prior forecast of $3.20 per share, which would have translated to 5% growth.

So it makes sense to expect prolonged weakness in the stock price by similar margin. Analysts expect the company to earn $3.18 per share, which places the stock at a forward price to earnings multiple of 17, which is in line with the S&P 500 (SPX) index. 

The stock maintains a consensus buy rating and an average price target of $63.50, implying additional premiums of almost 20%. However, assuming VF does earn $3.13 per share for the fiscal year, this would translate to growth of about 3%, below the 5% projected growth for the S&P 500 index. The more likely scenario is VF stock falls 3% to 5% or around $50 per share. It's at that point, VF stock becomes attractive, not be before.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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