VF: Activist Makes Reasonable Case for Extreme Undervaluation and Needed Reforms

On Oct. 17, activist investor Engaged Capital appeared at a conference and released a slideshow on VF VFC, sending its shares up 14%. VF has been an obvious candidate for activist involvement given its disappointing results, its capital allocation choices, the abysmal performance of its shares (down from $100 in 2019 to under $20 today), and its apparent undervaluation. In its presentation, Engaged offers a pathway to a share price of $46 for VF in March 2026 (the end of VF’s fiscal 2027) based on cost cuts, changes in corporate structure, and brand investments. We agree with Engaged’s overall thesis. Our $60 fair value estimate, which we are not revising on this news, is based on our 10-year discounted cash flow model that assumes VF can achieve margin improvement and revitalized sales growth.

Engaged’s specific criticisms of VF include bloated corporate costs, overly centralized control of main brands, poor capital allocation—including the acquisitions of Supreme and Dickies—and excessive debt. The activist blames many of VF’s problems on former CEO Steve Rendle, who was shown the door last December, and a passive board. We agree with Engaged’s overall view, having changed our capital allocation rating on VF to Standard from Exemplary earlier this year. On the positive side, we also agree with Engaged that VF has strengths and that its problems can be fixed. Our narrow moat rating on VF is based on its brand intangible asset, led by Vans and The North Face. In its presentation, Engaged highlights the popularity of these brands, as well as VF’s potential for free cash flow generation and exposure to attractive categories and markets.

Among Engaged’s specific plans, it calls for eliminating bureaucracy and other costs to save at least $300 million per year while investing $100 million to support Vans and The North Face. It also calls for divestitures and rapid debt reduction. We regard these goals as realistic.