Vans Momentum Isn't Slowing Down For VF Corp, According To Cowen

Consensus estimates remain conservative heading into VF Corp VFC's third-quarter report, according to a new analyst report.

The Analyst

Cowen analyst John Kernan maintains an Outperform rating on VF Corp and lowered his price target from $106 to $95.

The Thesis

In December, VF Corp announced Kontoor Brands, an independent publicly traded spin-off of its jeanswear business comprised of Wrangler, Lee and Rock & Republic brands.

Cowen says VF Corp’s valuation gap to Nike Inc NKE -- its closest large cap peer -- is now the widest it has been in two years, but a sum-of-the-parts analysis into the jeanswear spin-off suggests shares are undervalued and the risk-reward scenario is compelling.

Vans momentum doesn't appear to be slowing anytime soon either, with Kernan stating continued acceleration in the U.S. is likely offsetting any potential deceleration in European trends.

“We feel consensus is ultimately conservative through 2H:19 as Vans shows no deceleration in trend, The North Face accelerates, and DTC mix provides expansion of EBIT margin into the mid-teens in FY19, driven equally by continued gross margin expansion and SG&A leverage," Kernan wrote in the note.

Kernan also expects ongoing M&A activity from VF Corp as the company maintains a significant competitive advantages that includes manufacturing nearly 33 percent of its product in its owned factories.

Price Action

Shares of VF Corp were up 1.2 percent at $72.86 Thursday afternoon. The company is set to report its third-quarter report on Friday before the open.

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