Current Price: ~ $115/share
Projected Yield: ~ 2.19%
Projected Yield: ~ 2.19%
VF manufactures and markets clothing, specializing in jeans, sportswear, outdoor apparel, and footwear. Its apparel brands include Lee, Wrangler, The North Face, Nautica, Seven For All Mankind, lucy, Majestic Athletic, and John Varvatos. Other brands include JanSport, Eastpak, and Eagle Creek backpacks and Vans and Reef footwear. In June 2011 the firm announced its intention to purchase Timberland. Pro-forma international sales account for more than 35% of revenue.
I estimated the firm's WACC today at 12.12% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and growth rates:
Year | FCF $Millions |
2001 | 604 |
2002 | 581 |
2003 | 456 |
2004 | 646 |
2005 | 451 |
2006 | 355 |
2007 | 700 |
2008 | 544 |
2009 | 888 |
2010 | 890 |
TTM | 656 |
Average Annual Growth FCF: ~ 11%
CAGR FCF: ~ 4%
Consensus Forecast Industry 5-Year Growth: ~ 15% per yearConsensus Forecast Company 5-Year Growth: ~ 10% per year
Scenario 1
Average FCF over the past three years is $774 million. Starting at $774 million FCF, assuming the company achieves a 5-year growth rate in FCF of 10% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
Year | FCF $Millions |
0 | 774 |
1 | 851 |
2 | 937 |
3 | 1030 |
4 | 1133 |
5 | 1247 |
Terminal Value | 11314 |
The firm's future cash flows, discounted at a WACC of 12.12%, give a present value for the entire firm (Debt + Equity) of $10,042 million. If the firm's fair value of debt is estimated at $978 million, then the fair value of the firm's equity could be $9064 million. $9064 million / 109 million outstanding shares is approximately $83 per share and a 20% margin of safety is $67/share.
Scenario 2
Starting at $774 million FCF, assuming the company achieves a 5-year growth rate in FCF of 10% per year, and then a growth rate in FCF of 4.25% per year forever:
Discounted Cash Flow Valuation
Year | FCF $Millions |
0 | 774 |
1 | 851 |
2 | 937 |
3 | 1030 |
4 | 1133 |
5 | 1247 |
Terminal Value | 17425 |
The firm's future cash flows, discounted at a WACC of 12.12%, give a present value for the entire firm (Debt + Equity) of $13,491 million. If the firm's fair value of debt is estimated at $978 million, then the fair value of the firm's equity could be $12,513 million. $12,513 million / 109 million outstanding shares is approximately $115 per share and a 20% margin of safety is $92/share.
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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