Brean On VF Corp: 'We Are Buyers...'

• The share price of VF Corp VFC has declined 15.46 percent year-to-date, touching a low of $63.75 on October 23.
• Brean Capital’s Eric Tracy has maintained a Buy rating on the company, while lowering the price target from $79 to $73.
• Tracy believes that the recent sell-off in the stock was overdone, with the market overreacting to the management’s 3-4 percent revision in the EPS guidance.

According to the Brean Capital report, “VFC is as stable of an operator as there is, so a guide down is rarely seen, which combined with inventory growth outpacing sales forced the market to hit the reset button on a name that admittedly had seen material multiple expansion.”

Analyst Eric Tracy believes that the pullback in the stock offers an attractive entry point, given that the risk-reward has become more attractive due to the presence of long-term “structural drivers.”

The revision in the EPS guidance was primarily due to FX impact on the top and bottom line, while the underlying results demonstrated “the same level of consistent execution for which VFC has been known,” Tracy stated.

In the absence of the FX impact, revenues would have increased 8 percent, gross margins would have increased more than 100 bps and the EPS would have risen more than 15 percent.

“Looking to FY16, FX drag should moderate, aided by pricing/lower input costs," the report mentioned, while adding that although Fx headwinds from non-euro currencies were expected to continue at least till 2H16, “currency drags should wane as international mix falls seasonally and euro comparisons ease.”

In addition, Tracy expects a positive commodity/input cost environment and pricing to support margins.