Market Overview

BofA Double Downgrades Gildan On Nicaraguan Unrest

BofA Double Downgrades Gildan On Nicaraguan Unrest
Related GIL
Earnings Scheduled For November 1, 2018
Desjardins Downgrades Gildan On Valuation, But Says Apparel Brand Is Making Impressive Progress

As geopolitical concerns weigh on the Central American supply chain, Gildan Activewear Inc (USA) (NYSE: GIL) is suffering from circumstances beyond its control, according to Bank of America Merrill Lynch. 

The Rating

Analyst Heather Balsky downgraded Gildan from Buy to Underperform and cut the price target from $34 to $26.

The Thesis

Gildan operates three of its 13 sewing facilities in Nicaragua, which is enduring labor strikes, road closures, violence and political turmoil, Balsky said in the Tuesday downgrade note. (See the analyst's track record here.) 

While the concentrated unrest isn’t seen to stunt the firm’s long-term growth strategy, it could weigh on immediate valuation, the analyst said.

“We expect GIL to work quickly to mitigate supply chain challenges, but these adjustments can take time, hurt efficiency and result in additional costs." 

BofA expects the disruption to drive a 7-percent increase in labor and transportation costs as Gildan shifts sewing to other sites and outsources projects to contractors. At the same time, delivery delays could pressure sales and diminished capacity could prevent Gildan from pursuing incremental demand, Balsky said. 

The variables are likely to restrict fourth-quarter margins and squeeze Gildan's 2018 and 2019 bottom lines by 4 percent, the analyst said. 

Gildan continues to recover from the 2017 Honduran earthquakes, which pushed orders from the first half of 2018 to the second, according to BofA. Similar inventory constraints and manufacturing and transportation inefficiencies were seen after Haiti’s 2010 earthquake, which led to a $7-million cost increase and forfeited sales.

Price Action

Gildan shares were trading down more than 5 percent to $26.75 at the time of publication Tuesday. 

Related Links:

TD Securities Upgrades Gildan, Says Strategic Transformation Is Underway

Imminent Political Risk For The Mexico ETF

Latest Ratings for GIL

Aug 2018DesjardinsDowngradesBuyHold
Jul 2018Bank of AmericaDowngradesBuyUnderperform
May 2018DA DavidsonTerminatesNeutralNeutral

View More Analyst Ratings for GIL
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Heather BalskyAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga


Related Articles (GIL)

View Comments and Join the Discussion!

Latest Ratings

View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

This Day In Market History: The Liquidation Of Corporate Fraud ZZZZ Best

34 Stocks Moving In Tuesday's Mid-Day Session