Investing.com — Shares of VF Corporation (NYSE:) were down 3.8% in pre-market trading on Monday following a downgrade from Wells Fargo, which revised the stock’s rating to “underweight” from “equal weight.”
The change reflects Wells Fargo’s concerns that recent optimism around VF’s turnaround efforts, especially at its Vans brand, may be premature and overestimated.
Analysts at Wells Fargo also cut the company’s price target to $15 from $16, citing the company’s inflated valuation and the challenges it faces across its portfolio.
VF Corporation, which owns major brands like Vans, The North Face, and Timberland, has enjoyed a 60% rally in its stock since mid-July, driven by catalysts such as the hiring of Sun Choe to lead Vans, the divestiture of the Supreme brand, and better-than-expected first-quarter results for fiscal 2025.
However, Wells Fargo’s latest report argues that the market has priced in too much upside.
Analysts warned that the recovery at Vans may be more prolonged than initially hoped and flagged growing risks, including potential slowdowns at The North Face, particularly in the Asia-Pacific region, which has been a key growth area for the brand.
Vans has shown sequential improvements recently, launching new products like the Knu Skool line and reporting gradual revenue improvements.
However, Wells Fargo noted signs that consumer interest is already peaking, coupled with increased markdown activity and lower transaction values, suggesting pricing pressures. “Simply put, the Vans recovery may take longer than anticipated,” Wells Fargo said.
The analysts further emphasized that the brand’s growth trajectory remains vulnerable, with potential for negative surprises when VF releases its next earnings report on Oct. 28.
The note also flagged concerns about The North Face, which has shown signs of weakening in North America and Europe. While the brand has benefited from strong sales in Asia, the uncertain economic environment in China raises the possibility that VF could face challenges sustaining growth across the broader region.
As per Wells Fargo, a slowdown in Asia-Pacific could have serious implications for the company’s second-half results and beyond.
Valuation concerns were another major factor behind the downgrade.
Wells Fargo analysts pointed out that the stock’s recent surge has resulted in a valuation that assumes higher profit margins than what the company is likely to achieve over the next few years.
VF’s current price reflects expectations of a 10% operating margin by fiscal 2027, well above the analysts’ estimates of 4-5% margins in the near term.
Read the full article here
