Stifel Makes The Case For Buying Hanesbrands

Hanesbrands Inc. HBI stock hit a new 52-week low of $17.16 Friday, but further downside is "limited" and the upside potential could be more than 20 percent, according to Stifel.

The Analyst

Stifel's Jim Duffy upgraded Hanesbrands' stock rating from Hold to Buy with a price target lifted from $21 to $23.

The Thesis

Hanesbrands' stock is now trading at a "depressed valuation," as its forward P/E multiple has fallen by half from a peak 20x multiple in 2015 to a 20x consensus today, Duffy said in the upgrade note. The valuation implies investors have low expectations — but that shouldn't be the case, as the company improved its portfolio composition over the years, the analyst said. 

The apparel company oversaw seven large acquisitions and multiple more tuck-ins, which resulted in a more diversified revenue mix profile but also improved the overall characteristics of the business portfolio, Duffy said. The consolidated business is defined by higher margins and higher returns, he said. 

The Champion brand is showing positive momentum and should see a double-digit growth rate moving forward, according to Stifel. Hanesbrands' revenue through digital channels remains "strong" and should grow in the high-teens The international business is also "healthier" and accounts for 33 percent of the total mix, Duffy said. 

The company will host an investor day presentation on May 15 where longer-term objectives — including the prior target of $1 billion in operating cash flow — will likely be "tempered," the analyst said.

"We see ample room for a more conservative view in consensus expectations and the multiple." 

Price Action

Shares of Hanesbrands were trading up about 3.5 percent off the open Monday. 

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Photo courtesy of Hanesbrands.