VF Corp. (VFC): A Real Comfortable Stock

Everybody's saying it, so we will, too: Baby, it's cold outside!  Companies like VF Corp (NYSE:VFC), maker of Wrangler jeans and winter clothing brands The North Face and Timberland, could be warming up as a result.  We think it's a buy for risk-averse folks fearful of expensive equities but hard-pressed to find an alternative in the land of slender bond yields.

Investors are at an interesting crossroads.  After a remarkable run in 2013, stocks by many lights are fully or over valued; but alternative assets offer such paltry returns that investors are forced to consider equities even as they fear a correction. 

We feel their pain, so recently we undertook an exercise aimed at capturing equity exposure at relatively modest risk, without retreating to the old familiar harbors of groceries and drugs.

Our bull case for VF Corp. rests on three legs: valuation, income and growth prospects.

VALUATION

The shares trade at 22.39 times trailing 12 months' earnings and 19.18 times earnings on forward estimates.  These ratios are lag those of the S&P 500 and are at a discount to peers.  Over the last five years, the company's shares have traded in the range of 9.2x to 23.3x trailing 12-months' earnings, so, based on historical multiples, the shares are near their highs.  But we remain persuaded because of …

INCOME

The company currently pays an annual dividend of $1.05 for a yield of 1.77%, enough in a low-yielding world to offer comfort while we await fruition of …

GROWTH STRATEGIES

VF Corp.  has impressively pursued an international business expansion that isn't finished yet, particularly in the Asia Pacific.  The company plans increasing its store count in China from 2,300 to 6,000 over the next five years and aims to increase revenue from international operations to 43% of total revenue from 38% currently.

Confidence in management's ability to execute is reflected in the PE to earnings growth measure (PEG) of 1.95, we believe.  Usually, value investors like to see a PEG below 1.0, but as have said.  Our goal in this exercise was not so much to seek value in an expensive market, but to gain equity exposure and relatively modest risk.  We think VF Corp. could be a reasonable vehicle in achieving that.

VF Corporation is a global leader in branded lifestyle apparel and footwear with more than 30 brands. The company's largest five brands are The North Face, Vans, Wrangler, Timberland and Lee. Other brands include 7 For All Mankind, Bulwark, Eagle Creek, Eastpak, Ella Moss, JanSport, Kipling, lucy, Majestic, Napapijri, Nautica, Red Kap, Reef, Riders, Splendid and Smartwool.  V.F. Corporation was founded in 1899 and is headquartered in Greensboro, N.C.