Week to date, shares of VF Corp (VFC 0.79%) were up 20% through Thursday's market close, according to data provided by S&P Global Market Intelligence.
The move followed a presentation by Engaged Capital, one of the company's top shareholders, that laid out a case for why the stock could be undervalued.
Here's why investors are excited about VF Corp's prospects
Engaged Capital invests in underperforming companies on the cheap. The goal is to take a big stake in the stock and influence changes to management's strategy that lead to better financial performance and, therefore, a higher stock price.
VF is an easy target for activist investors right now. It has struggled to generate profitable growth in recent years. In the most recent quarter, revenue was down 8% year over year, while reporting a loss of $0.15 per share on the bottom line. Engaged Capital sees a multibillion-dollar brand portfolio centered around The North Face and Vans that can deliver much better results.
Specifically, the firm sees a path to reduce costs by over $300 million. According to the firm's analysis, improving profitability could send the share price to over $40. Engaged says this can be achieved in the next three years and is willing to work with current management to make it happen.
Key Data Points
Should investors buy the stock?
The firm makes a solid case since it hinges primarily on improving profits. Driving higher revenue growth in the apparel industry is tough, especially in this challenging macro environment. But Engaged's investment case is largely based on reversing mistakes made by previous management, such as overpaying for acquisitions and not investing enough in the company's best brands.
The stock trades at a forward price-to-earnings ratio of less than 10, cheap enough to offer massive upside depending on how quickly earnings improve. However, the stock could continue to underperform if the weak consumer spending environment continues to weigh on revenue.
