Key points
- Shares of VF Corporation have been falling for three years.
- Last month’s earnings report marked the launch of an ambitious turnaround plan.
- Additionally, JP Morgan just upgraded the stock, and shares should rebound at the end of the year.
- 5 actions that we prefer than VF
There is no way around this problem: Company VF NYSE:VFC had three horrible years. Since Thanksgiving 2020, the retailers’ stocks have fallen 80%, bringing them back to 2006 levels. Indeed, one wonders what type of investor has stuck with them for so long. Much of the damage is due to slowing sales at the company’s flagship brand, Vans, whose revenue fell 21% year-over-year over the past month. income report.
This was one of the reasons behind management’s decision to lower cash flow forecasts by more than 30%, a catastrophic adjustment that further worsened the stock’s poor situation. Shares of VF Corporation fell 25% following the report and hit new lows.
Bad income
However, in the four weeks since this bloodshed, there has been a rebound in the recovery, albeit modest in a broader context, and stocks have returned to their pre-earnings level. Perhaps new initiatives to cut costs by $300 million as part of a transformation plan, Reinvent, are winning them new fans. Considering that the dividend of VF Corporation was reduced by 70% in this context, it is difficult to imagine them keeping the old ones.
But for those of us on the sidelines, it’s actually it’s not a bad time to at least watch the final chapter of the VF Corporation story unfold. A week ago, the JP Morgan team made the bold decision to raise its rating on shares of VF Corporation from underweight to neutral. It’s a long way from a full upgrade to a bullish overweight rating, but it’s a step in the right direction and a crucial one at that.
Recovery potential
Analyst Matthew Boss is a proponent of the cost-cutting initiative and, if executed correctly over the next few quarters, predicts VF Corporation will return to an “earnings inflection” point over the next two years. That being said, headwinds remain. It remains a challenging macro environment for companies like VF Corporation, even those who perform wellwith rising wages and supply chain costs a constant headache.
Additionally, any company, like VF Corporation, that seeks to leverage more of its online channel faces higher digital customer acquisition costs. So it’s compressed no matter where it is.
Boss and his team also made the decision to increase their December price target on the stock by 25%, bringing it to $19. If stocks hit this level in the final weeks of the year, it would be considered a resounding success, given the poor quality of the October report. It would also mean the stock would return to the same level as last summer, giving it a solid technical base from which to launch a new leg of the recovery rally in the new year.
To be involved
So, for those of us who are watching with interest, and maybe even a little more than that, what is the opportunity here? Well, depending on your risk appetite, an attractive entry opportunity opens up, whether long term or short term.
The first would require you to view this as a multi-year low and the very beginning of what will be a long recovery. Backing that up is the most ambitious turnaround plan the company has ever launched, plus some undeniably bright spots from the recent earnings report. The company’s North Face brand, for example, saw 19% year-over-year growth.
For the short-term investor, long-term optimism is unnecessary, and the opportunity is more about a dead cat bounce. There is a clear low at $13, set at the start of the month, from which shares have made highs and lows over the ensuing three weeks.
This is an uptrend no matter how you look at it, so buying into this type of momentum would be one way to profit. However, taking this approach will require careful risk management, so have a plan and stick to it.
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