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V.F. Corp's Contemporary Division Sale Welcomed By Canaccord Analysts

V.F. Corp's Contemporary Division Sale Welcomed By Canaccord Analysts

Canaccord Genuity reaffirmed its Buy rating on VF Corp (NYSE: VFC) and welcomed the apparel company's sale of its contemporary unit and expects similar deals in future.

As part of its strategy to overhaul its portfolio, V.F. Corp agreed to sell its contemporary brands business to Israeli textile company Delta Galil Industries Ltd. for $120 million. The deal reflects actions by the company to shift the portfolio to greater revenue/profit generating categories/coalitions.

"We welcome this transaction as the Contemporary coalition has been struggling for the past two years with no clear strategy in place to re-accelerate revenue growth as evidenced by management's MSD revenue decline guidance this year," analyst Camilo Lyon wrote in a note.

Related Link: Baird's Stock Picks In Footwear And Fitness Amid Brexit Fallout

Looking ahead, the analyst expects further pruning of the portfolio to occur this year. The analyst recalled that V.F. Corp is seeking strategic alternatives for its Licensed Sports Group, which is estimated to generate about $600 million–$765 million in proceeds.

Lyon said the cash generated from these deals should be channeled toward "a long waited/anticipated acquisition." The analyst said potential targets could be Deckers Outdoor Corp (NYSE: DECK), Puma, New Balance or Canada Goose.

For 2016, Lyon sees EPS of $3.24 on revenue of $12.94 billion.

At the time of writing, shares of V.F. Corp rose 1.15 percent to $62.20. The analyst has a price target of $82 on the stock.

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