Here's Why VF Corp Should Buy lululemon Now

In recent months, speculation has picked up regarding a possible takeover of popular yoga apparel retailer lululemon athletica (NASDAQ: LULU  ) by lifestyle apparel company VF Corp (NYSE: VFC  ) . While this potential deal makes sense for a number of reasons, should lululemon shareholders even want it to happen?

Source: lululemon 

A good fit:
Despite facing many hurdles in recent years, including a massive 2013 recall of too-sheer yoga pants and numerous subsequent public-relations blunders, lululemon still remains a strong brand name.

The label has a strong consumer base with deep roots in the popular yoga culture. Thanks to strong community efforts like the hosting of in-store yoga classes and various community events, lululemon still has a loyal clientele.

Additionally, the company has begun to diversify its product lineup. Lululemon's Ivviva brand, which targets young women ages six-12, grew sales 17% over the last year. Perhaps more important is that the Ivviva brand captures female consumers while they are young and looks to make them lifelong lululemon consumers going forward. 

Also, the company's &go product line, which is basically more versatile yoga gear designed to be worn in workout, business, and casual settings, has met with early success. 

Most signs at lululemon point to a still healthy and expanding lifestyle brand with even greater potential going forward. This is exactly the kind of brand that VF Corp has acquired in the past. VF has a very successful history of acquiring strong brands at value prices and growing them methodically. The company has done so with brands like The North Face and Timberland.

Even more important is that the leadership team at VF has what lululemon's management team seems to lack at the moment, the ability to effectively coordinate a turnaround.

Last week, ISI's analyst Omar Saad summed up VF Corp in a nutshell, referring to it as a "private equity firm on steroids." He then explained why he believed lululemon was a good fit for the company by saying, "VF Corp has in spades what Lululemon lacks: aspirational lifestyle brand-building capabilities, deep-rooted product innovation platforms, and a best-in-class, scaled supply chain." 

Source: lululemon 

The opportunity
The time seems right for VF Corp to consider buying lululemon. Shares of the yoga company currently trade near 52-week lows and are down almost 50% in the last year.

Additionally, the company represents a good value right now as its growth is still rather impressive despite relatively cheap valuation multiples. According to Yahoo! Finance, analysts estimate that lululemon will grow sales 12.9% in the fiscal year ending January 2015 and 14.8% in the following year. 

This growth is more robust than VF's expected sales growth of 8% and 8.3% in 2014 and 2015, respectively. This means that the lululemon brand would be a worthy addition to VF's portfolio, as it would help to accelerate the company's overall revenue growth. 

Lululemon's forward P/E of 19.8 is also only slightly lower than VF's forward P/E of 18.1 despite the superior growth. However, when compared to larger competitor Nike (NYSE: NKE  ) , which is expected to grow sales only 9.5% and 8.6% in 2014 and 2015, respectively, the yoga company appears relatively cheap. Nike's forward P/E of 22.6 is a bit higher than lululemon's forward P/E of 19.8. 

Bottom line:
At current levels, lululemon looks to be a rewarding long-term investment. Not only is the company still growing revenue rather well despite recent missteps and trading at a relatively cheap valuation, the lifestyle retailer is also a prime buyout candidate. Regardless of a potential buyout by VF Corp. its shares are definitely worth a closer look by Foolish investors. 

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