UPDATE: ISI Group Upgrades Hanesbrands Following Maidenform Brands Acquisition Announcement

In a report published Thursday, ISI Group analyst Omar Saad upgraded Hanesbrands HBI from Neutral to Buy, and raised the price target from $55.00 to $70.00.

In the report, ISI Group noted, “We are upgrading Hanesbrands to Buy from Neutral following its announced acquisition of Maidenform Brands for $23.50 per share (~$575 million EV) in a deal management expects to be accretive in year one. We have always admired HBI's unique combination of strong ‘consumer goods-like' apparel brands, scalable innovation platforms, and cost-advantaged proprietary supply chain, and we are excited to see what this innerwear powerhouse will be able to do with Maidenform. Maidenform's business hasn't evolved much since its 2005 IPO and has particularly underperformed as of late, posting double-digit sales declines and EBIT margins ~40% below peak levels, which implies a huge opportunity for Hanesbrands. Specifically we like that: 1) this deal firmly establishes HBI's strong position in the women's intimates category in key wholesale channels (department stores, national chains, and mass retailers); 2) the two businesses are quite complementary and have surprisingly little overlap (HBI's strengths are in full-figure bras, underwear, undershirts, panties, and pantyhose and MFB's strengths lie in average-figure bras and shapewear); 3) there are potentially huge supply chain synergies given HBI's scaled owned manufacturing platform vs. MFB's current purely outsourced model; and 4) HBI's cash flow and debt paydown story is little changed as a result of the deal and will continue to be a key element of the equity value creation story this year and beyond.”

Hanesbrands closed on Wednesday at $57.58.