Here’s Why VF Corporation Stock Could Gain Only 10% Post Covid-19 Crisis

VFC: VF Corporation logo
VFC
VF Corporation

Comparing the trend in VF Corporation stock (NYSE: VFC) (which owns brands such as Vans, Timberland, and The North Face) over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 10% to levels around $65, once fears surrounding the coronavirus outbreak are put to rest. Like most apparel retailers, VFC is essentially currently limited to e-commerce sales, as most of its stores around the world remain closed or are seeing weak footfall. It should be noted that the company generates roughly 7% of its total revenues from digital sales.

A detailed comparison of VFC performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did VF Corporation Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. VFC stock lost 44% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 28% over recent weeks (vs. about a 36% gain in the S&P 500) to its current level of close to $59.

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VFC Stock Fell Because The Situation On The Ground Has Changed

Consumers under lockdown-style conditions could likely forego apparel and other discretionary consumer items and focus on buying necessities such as food and medicine. The coronavirus outbreak has forced nonessential retail stores to close across the globe. VFC had to temporarily force shut its retail stores in mainland China at the beginning of the year and soon thereafter in North America, as part of its response to the impact of the Covid-19 pandemic on its business.

The coronavirus crisis led to a disappointing Q4 FY 2020 ending in May. The company’s revenues declined 11% year-over-year (y-o-y), while its adjusted earnings per share fell 70% y-o-y in Q4. In fact, the company has guided for the upcoming fiscal Q1 revenues to decline by more than 50%, given the weak shopping trend seen in this quarter. If signs of coronavirus containment aren’t clear by its August Q1 earnings timeframe, it’s likely that VFC’s stock is going to see a continued drop when results confirm reality.

VFC Stock Fared Better During The 2008 Downturn

But VFC stock witnessed something similar during the 2008 downturn. VFC’s stock declined from levels of around $15 in October 2007 (the pre-crisis peak) to roughly $9 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 35% of its value from its approximate pre-crisis peak. This marked a much lower drop than the broader S&P, which fell by about 51%.

However, VFC’s stock recovered post the 2008 crisis, to levels of about $14 in early 2010, rising by 47% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will VF Corp Stock Recover Similarly From The Current Crisis?

It should be noted that VFC’s stock fell 44% from the market peak on February 19 to the low on March 23 compared to the 35% decline during the 2008 recession. Also, since it has recovered almost 28% over recent weeks – we believe it can potentially recover by another 10% to be close to $65 once economic conditions begin to show signs of improving. This marks a partial recovery to around the $83 level VFC stock was before the coronavirus outbreak gained global momentum.

We also compared the trend in Under Armour’s stock over recent months with the 2008 crisis.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of VFC’s multinational peers including Nike. The complete set of coronavirus impact and timing analyses is available here.

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