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Wells Fargo Recommending Weak 2016 Retail Names

Wells Fargo Recommending Weak 2016 Retail Names

Following a tough 2016 for its retail coverage group, when it underperformed versus the S&P 500 , Wells Fargo said in a note it is a buyer of several of 2016's laggards. Accordingly, the firm views Hanesbrands Inc. (NYSE: HBI), Kate Spade & Co (NYSE: KATE), Signet Jewelers Ltd. (NYSE: SIG) and Skechers USA Inc (NYSE: SKX) as the most compelling risk/reward setups in its space.

Wells Fargo said it is taking a mean reversion stance for 2017, premised on the possibility that the laggards of the past year could be approaching inflection points. Specifically, the firm is targeting names possessing the following characteristics:

  • Underperformance relative to its group coverage.
  • Have seen multiple compression.
  • Carrying relatively low investor sentiment or expectations.
  • Have some type of potential catalyst/inflection into the next year.

Hanesbrands: Headwinds Subsiding, New Innovation To Support

As Hanesbrands shares were down 27 percent in 2016, the firm noted its multiples have compressed to 10 times versus 15.5 times 12 months ago. The firm believes investor concerns may be alleviated by a return to organic growth, potentially beginning in the fourth quarter. Looking ahead into 2017, the firm expects the headwinds to subside and organic growth to be supported by new innovation and improved performance in basics.

Most Flexible In The Space

Wells Fargo noted that investors are concerned about the election, specifically developments with trade and potentially more punitive taxation on foreign importers. However, the firm believes Hanesbrands is one of the most flexible in its space, particularly given the agility of its owned supply chain and production having been primarily U.S.-based until 2007–2008. Thirty (30) percent of sales are now international, the firm noted.

Depressed Valuation

Wells Fargo highlighted the fact that the shares of Hanesbrands remain less expensive than many of its peers likely to face similar implications under a Trump presidency. The firm also believes investors could be positively surprised by Hanesbrands' ability to return to organic growth in 2017.

Latest Ratings for HBI

Nov 2019Initiates Coverage OnEqual-Weight
Sep 2019MaintainsNeutral
Aug 2019MaintainsNeutral

View More Analyst Ratings for HBI
View the Latest Analyst Ratings

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