VF Corp. stock (NYSE:VFC) has witnessed a significant surge of over 14% in a single day’s trading, marking the company’s best performance since October 2008. VF Corp., a conglomerate in the apparel and footwear industry that owns brands such as Vans, The North Face, and Timberland, is now in the crosshairs of activist investor Engaged Capital, which has reportedly acquired a substantial stake in the company.
Engaged Capital is said to be pushing for several strategic changes, including a $300-million cost-cutting plan and a review of VF Corp’s non-core assets and real estate. The company’s shares have been on a downward trajectory for the past five years, with a decline of over 76% during this period.
Engaged Capital’s involvement could provide the impetus for VF Corp to make necessary changes to its business. This, in turn, may present an opportune moment to consider buying the company’s shares. Here’s why:
CEO Replacement Unlikely
Activist investors like Engaged often propose numerous changes when they engage with the management and board of the companies in which they hold shares. However, in this case, it’s unlikely that Engaged will seek to replace the CEO. VF Corp recently appointed Bracken Darrell as its new CEO, who came from Logitech (NASDAQ:LOGI) where he delivered a remarkable cumulative return of 681% during his 10.5-year tenure. Given Darrell’s track record, VF Corp’s board is likely looking for him to replicate his success with the iconic apparel company, making it improbable that Engaged will push for a change at the top.
Target Share Price
According to Chris Hetrick, Director of Research at Engaged, VF Corp’s shares could potentially reach $50 within three years if the company aggressively executes its plan. Hetrick suggests that the only two brands VF Corp should retain are The North Face and Vans. He also believes that the company should consider cutting its dividend, currently at an annual rate of $1.20. Engaged has been critical of the former CEO’s decisions, including the underinvestment in Vans, leading to a decline in its popularity, and the acquisition of Supreme for $2.1 billion, which weakened the company’s balance sheet. The activist investor has attributed VF Corp’s value destruction to the former CEO’s failed strategy.
Current Business State
VF Corp’s revenue in Q1 2024 was 8% lower, but The North Face reported its 10th consecutive quarter of double-digit revenue growth, up 12% excluding currency. The company also experienced a 31% increase in revenue in China, leading the way in the Asia/Pacific region. While VF Corp expects sales for 2024 to be flat year-over-year to moderately lower, its earnings per share is projected to be $2.15 at the midpoint of its guidance, translating to a price-to-earnings ratio of 8.4x based on its current share price.
Despite the challenges and the activist investor’s scrutiny, VF Corp appears to be in a position to rebuild its business, with several positive signs, including strong performance from some of its key brands and regions. While having an activist investor monitoring its actions may bring both opportunities and challenges, it’s a situation that bears close observation.
For those looking to capitalize on the situation, selling the Nov. 17 $20 put could be a strategy to consider. With a bid price of $2.30 at the time of writing, it offers an annualized yield of 147.2%. If the share price stays around $18.45 and the shares are put to the investor in 31 days, the net entry price would be $17.70, slightly better than the current trading price. If the option expires above $20, the investor pockets the $230 premium.
In any case, the $20 level is potentially within reach for VFC stock, and with the activist’s involvement, it might be an opportune time to act for those with an aggressive stance.
Featured Image: Freepik @ DCStudio
