Acquisitions Are a Value-Enhancing Strategy for VF
Moat-building cost and brand advantages position the firm well.
Acquisitions have been a core component of VF's (VFC) growth strategy and are likely to continue to be a strategic goal, given their inclusion in the company's 17x17 five-year plan. We have completed a scenario analysis to determine the impact they would have on our fair value estimate. Although determining any acquisition target and its value is highly difficult at best, we explore a few options that make sense considering the importance of the outdoor and action sports coalition, international expansion, and direct-to-consumer penetration to VF's strategic goals. We believe that a $1.5 billion acquisition, which would add approximately $1.2 billion in revenue and $130 million in operating income, could provide 11% upside to our current fair value estimate of $62.
In our opinion, VF's moat-building cost and brand advantages have uniquely positioned the company to make acquisitions accretive to earnings and are a quick way to expand into the higher-growth lifestyle space. As such, we think a scenario analysis should be a valid component in an investor's shareholder return calculation.
Bridget Weishaar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.