FBR: Latest Hanesbrands Acquisition Is Huge Growth Opportunity

Hanesbrands Inc. HBI has announced its plans to acquire Champion Europe. FBR’s Susan Anderson reiterated an Outperform rating for the company, with a price target of $39.

Champion Europe owns the trademark for the Champion brand in Europe, the Middle East, and Africa. Hanesbrands has agreed to buy this company for approximately €200M, in a deal likely to close by mid-2016 and expected to be accretive in the first year.

Expectations From Champion Europe

Champion Europe is expected to generate sales of €190M in 2016, with €15M in op profit. Hanesbrands expects Champion Europe’s revenue to grow to €250M in three years, with op profit of €25M. Analyst Susan Anderson said that the 3-year estimates appear conservative, given supply-chain savings and “considerable room to expand product offerings.”

More Earnings Upside
Anderson believes that the acquisition fits well within Hanesbrands’ portfolio and expertise. There is already potential EPS upside of ~$2.33 in 2017. Moreover, given the deal’s small size, Hanesbrands may make another acquisition in 2016.

“The acquisition of CE reinforces our thesis that HBI can continue to drive significant earnings power through its virtuous cycle of margin drivers (I2E), synergies, and cash flow/capital return/acquisitions,” the analyst wrote.