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VF Corp: Branded for Growth

The world's largest apparel maker generates fashionable sales, yet its stock doesn't sport a marked-up price, analysts say.

Clothing maker VF Corp. has been dressing for success by adding upscale brands. As a result, some analysts say the stock of this high-quality company (symbol VFC) could be a good fit for long-term investors.

VF is the world's largest publicly traded apparel maker. Its wide-ranging stable of brands is anchored in denim names, such as Lee and Wranger, as well as intimate apparel labels, including Vanity Fair. The mass-market jeans business generates a lot of cash, but competition is tough. VF's real sales growth lately has been coming from so-called lifestyle brands that the company acquired over the past few years. Sales at The North Face, for example, have more than doubled since the VF added the brand to its collection in 2000. "The lifestyle businesses are on fire, with plenty of long-term growth and margin expansion opportunity," says Prudential analyst Lizabeth Dunn.

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In addition to The North Face, VF's fast-growing brands include Vans footwear and JanSport backpacks, as well as Kipling and Napapijri, which are popular in Europe. Dunn is also optimistic about future sales growth at the acquired sportswear brand Nautica. VF's outdoor lifestyle and sportswear brands account for 32% of sales, and the company aims to increase that proportion to 55% to 60% by 2010, according to Value Line Investment Survey. Analysts agree that VF has been successful in incorporating and, in some cases, turning around its purchased brands. The company remains on the lookout for future acquisitions.

Brad Stephens, an analyst at Memphis-based investing firm Morgan Keegan, views VF as the gold standard of the apparel business. He says that VF distinguishes itself by regularly exceeding the Street's quarterly earnings expectations, "while the majority of its competitors have disappointed at least once (and some many times)." He also likes VF's impressive free cash flow and strong balance sheet. The company has a share-repurchasing program, but Stephens thinks more cash ought to be devoted to buybacks.

VF's earnings per share grew 9% in 2005, and analysts expect 10% annual growth over the long term. The stock, which closed Friday at $57, trades at 12 times 2006 estimates of $4.82 per share, and it yields 2.1%.

--Lisa Dixon

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