Shares of VF are in fashion with investors today as the apparel maker announced it would acquire the footwear company Timberland.
VF Corp. (ticker: VFC) said this morning that it would buyTimberland (TBL) for approximately $2 billion, or $43 a share, a premium of more than 40% to Timberland's Friday close. The boards of both companies have approved the merger, which VF expects to bring $700 million in additional revenue this year. The deal should close in the third quarter.
Investors cheered the move, sending VF shares up 10.5% in midmorning trading, to $101.40. We agree with the market, and think the company will continue to chalk up gains.
Even though VF is paying a sizable premium for Timberland, the deal comes at an auspicious time, as the latter sold off heavily after it reported disappointing first quarter earnings in April.
Wall Street Strategies analyst Brian Sozzi called the deal a "steal" for VF, and pointed to Timberland's global brand cachet and synergies between the two companies' outdoor lifestyle products. (VF produces clothing under the North Face, Nautica, and Wrangler brands, among others.)
VF's strong brands are the company's main asset, so adding Timberland to the line-up makes sense. It will also allow VF to expand Timberland's offerings into new product categories while benefitting from its brand loyalty, a growth strategy VF has employed successfully in the past.
Fundamentally, VF is attractive in other ways, beyond its future with Timberland. Morningstar analyst Peter Wahlstrom praised the fact that VF is "highly diversified across brands, product categories, channels of distribution, and geographies," and that its operational structure "allows individual brands to function independently and pursue separate growth initiatives while leveraging centralized procurement, information technology, and logistics."
The company has a strong balance sheet, and while rising input costs have worried investors, VF is actually more insulated than other apparel makers, given its small direct retail presence and the fact that it has already locked in pricing for 2011 with many of the stores it supplies (which will take the hit on any subsequent markdowns). "VFC has a better idea of pricing than most competitors as it typically does not own the markdown on a majority of its sales," wrote Sterne, Agee & Leach analyst Kenneth Stumphauzer in a note last week. "VFC is favorably positioned relative to most suppliers."
International growth is another driver for the stock, as VF gets 30% of its sales from international markets and should see increasing returns from its China business. The Timberland acquisition will further this geographic strength, as the combined company is expected to derive 35% of revenue from overseas.
Standard & Poor's Equity Research analyst Marie Driscoll, who thinks the stock can reach $120, noted that despite the weak economic environment, "a number of VF's brands will continue to enjoy strong momentum in 2011 and…they have superior long-term growth potential," as the company takes the offensive "to expand and support its multiple growth opportunities."
Similarly, Cowen & Co. analyst John Kernan thinks "the Street underestimates expansion of the North Face and Vans, which should substantially alter the company's growth and returns profile from historical levels."
Barron's has been positive on VF in the past; last summer the magazine correctly predicted the shares could top $100, given its enviable brands and positioning. (See Feature, "A Closetful of Opportunity," July 17, 2010).
Despite today's pop, shares of VF aren't overly pricey, changing hands at 12.7 times forward, with a 2.7% yield.
Therefore, there's plenty to like about VF, and the Timberland acquisition, which seems well timed and well priced, should only add to its strong stable of brands and international presence.
VF Corp. (ticker: VFC) said this morning that it would buyTimberland (TBL) for approximately $2 billion, or $43 a share, a premium of more than 40% to Timberland's Friday close. The boards of both companies have approved the merger, which VF expects to bring $700 million in additional revenue this year. The deal should close in the third quarter.
Investors cheered the move, sending VF shares up 10.5% in midmorning trading, to $101.40. We agree with the market, and think the company will continue to chalk up gains.
Even though VF is paying a sizable premium for Timberland, the deal comes at an auspicious time, as the latter sold off heavily after it reported disappointing first quarter earnings in April.
Wall Street Strategies analyst Brian Sozzi called the deal a "steal" for VF, and pointed to Timberland's global brand cachet and synergies between the two companies' outdoor lifestyle products. (VF produces clothing under the North Face, Nautica, and Wrangler brands, among others.)
VF's strong brands are the company's main asset, so adding Timberland to the line-up makes sense. It will also allow VF to expand Timberland's offerings into new product categories while benefitting from its brand loyalty, a growth strategy VF has employed successfully in the past.
Fundamentally, VF is attractive in other ways, beyond its future with Timberland. Morningstar analyst Peter Wahlstrom praised the fact that VF is "highly diversified across brands, product categories, channels of distribution, and geographies," and that its operational structure "allows individual brands to function independently and pursue separate growth initiatives while leveraging centralized procurement, information technology, and logistics."
The company has a strong balance sheet, and while rising input costs have worried investors, VF is actually more insulated than other apparel makers, given its small direct retail presence and the fact that it has already locked in pricing for 2011 with many of the stores it supplies (which will take the hit on any subsequent markdowns). "VFC has a better idea of pricing than most competitors as it typically does not own the markdown on a majority of its sales," wrote Sterne, Agee & Leach analyst Kenneth Stumphauzer in a note last week. "VFC is favorably positioned relative to most suppliers."
Standard & Poor's Equity Research analyst Marie Driscoll, who thinks the stock can reach $120, noted that despite the weak economic environment, "a number of VF's brands will continue to enjoy strong momentum in 2011 and…they have superior long-term growth potential," as the company takes the offensive "to expand and support its multiple growth opportunities."
Similarly, Cowen & Co. analyst John Kernan thinks "the Street underestimates expansion of the North Face and Vans, which should substantially alter the company's growth and returns profile from historical levels."
Barron's has been positive on VF in the past; last summer the magazine correctly predicted the shares could top $100, given its enviable brands and positioning. (See Feature, "A Closetful of Opportunity," July 17, 2010).
Despite today's pop, shares of VF aren't overly pricey, changing hands at 12.7 times forward, with a 2.7% yield.
Therefore, there's plenty to like about VF, and the Timberland acquisition, which seems well timed and well priced, should only add to its strong stable of brands and international presence.
