VF Corporation: Let’s Go Shopping

Forward View is reiterating our Hold rating on shares of VF Corporation following the company’s announcement that it will acquire privately-held Williamson-Dickie Mfg. Co. for $820M, less than 1x Williamson-Dickie’s TTM revenue of $875M. Williamson-Dickie owns several major workwear brands including Dickies, Workrite, Kodiak, Terra and Walls. The deal looks cheap based on revenue, but VF paid 11x Williamson-Dickie’s adjusted TTM EBITDA. Our price target for VF’s stock has been increased by $1 due to the significant revenue added through the acquisition. Our excitement is tempered by the fact that Williamson-Dickie’s FY16 operating margin was around 5% while VF’s Workwear business boasted a 16.3% FY16 operating margin. We believe that VF can certainly improve Williamson-Dickie’s margins, but strengthening the business won’t happen overnight. We like this deal overall, but it doesn’t drastically change our valuation of VF. The company just bought a… project.