Analysis of VF Corp. (VFC:NYSE)

VF Corporation is an American company engaged in the design, production, sourcing, marketing and distribution of branded clothing, including jeans, sportswear and footwear. With over 30 brands, VF is a clothing giant. Its brands include Eastpak, Lee, The North Face, Timberland, Vans and Wrangler. The company was founded in 1899, originally manufacturing gloves. Today, it employs a whopping 69,000 people.

VFC is unfortunately trading at an inaccessible price at the moment, like many other American and European stocks. It is trading at 29 times recurring earnings, 92 times tangible book value, 2.9 times sales and 27 times free cash flow. That's very, very expensive!

From a dividend perspective, it's a little better, since we can still obtain a yield of 2.3%, for a distribution ratio of 68%. There is therefore still a little room for VF to continue to grow its distributions in the future. It has not deprived itself of doing so in the past since it has increased its dividend every year for a whopping 45 years! Now that's what we call a dividend aristocrat across the Atlantic... Over the past five years, distributions have actually increased by 18.5% per year, which is remarkable. It even increased significantly in 2016 while profits were falling, which proves that the company still has enough margin to continue to increase its shareholders' pocket money each year and thus retain its crown as the king of dividends.

Just like the dividend, profits, cash reserves and asset values are growing over the long term, which proves the solidity of the American giant's business model. VF clearly manages to create value over time for its owners and this is reflected in the share price which has more than quadrupled over the last ten years.

Cash reserves are very comfortable, with a current ratio of 2.4 (up) and a reduced liquidity ratio of 1.58. VF therefore has no worries about meeting its current financial obligations. The gross margin is also comfortable, with 48.4% (up), for a net margin of 8.33%. Even if it is slightly down, the return on assets is impressive, with 12%, for an equally appreciable return on equity, of 22.2%.

On the debt side, things are apparently a little less glorious, with a long-term debt ratio compared to assets of 21% (notably increasing). Nevertheless, VF has such a capacity to generate money, with low capital expenditures, that it would theoretically be able to repay its entire debt in less than two years using all of its available cash flow. By thus having an intelligent recourse to debt, VF can finance its development without having to dilute its shareholders' equity. Quite the contrary, the number of shares in circulation has been decreasing every year for many years! Combine this with the dividend which is also increasing every year and you quickly understand why the price is soaring.

As we have seen, VF Corporation is very solid. The company's history speaks for itself. Due to its defensive sector of activity, it is partly protected from major economic and financial upheavals. This is confirmed by a beta of 0.9. VF also consists of a very diversified portfolio of brands and articles. Even if we are facing a giant, its business remains simple and easily understandable. Above all, VF does what it does and nothing else: produce and market clothing. Due to its size and its renowned brands, it is also relatively well protected from new competitors.

If it weren't for the price, VF would typically be the kind of stock you can buy and forget about for many, many years. But right now, VFC is overpriced. I bought it in May 2010, it's one of my oldest holdings, one of the few US stocks that has withstood my portfolio shakeup last year. At over 90 times tangible book value, the price is becoming unsustainable. Even if you factor in intangible assets, which are very important at VF, that would still bring us back to 9 times book value. Too much is too much.

VF is going to announce its earnings on February 16th. The expectations for this stock are so high that the market is already anticipating an earnings surprise. So it had better be, because anything else would be a disappointment...

So I just parted ways with this gem. I would like to take this opportunity to thank her for this fruitful journey of almost eight years that we shared. No doubt we will see each other again in the more or less near future...