Hanesbrands No Longer A Buy At Barclays

Apparel maker Hanesbrands Inc. HBI reported its second-quarter results Wednesday, which prompted Barclays to downgrade the stock from a bullish stance.

The Analyst

Barclays' Chethan Mallela downgraded Hanesbrands from Overweight to Equal Weight with a price target lowered from $22 to $19.

The Thesis

Exiting Hanesbrands' report, a near-term improvement in sentiment is "less likely" for multiple reasons, Mallela said in a note.

The company's Champion brand in January 2020 will terminate a longtime deal with retail giant Target Corporation TGT and this could prove to be a "lasting concern" into fiscal 2019 and fiscal 2020 through a potential wind-down ahead of the termination date.

Over the near-term, Mallela said Hanesbrands needs to show a significant organic sales and margin inflection to achieve its full year 2018 outlook. The problem for Hanesbrand is the company's second-quarter report was merely in-line with expectations versus expectations for a beat which creates a "near-term overhang."

Hanesbrands' stock valuation remains "undemanding" even after the initial 19-percent sell-off, the analyst said. The stock was trading at 9.7 times Barclays' 2019 earnings per share estimate, which represents a 34 percent discount versus its peers but a lack of positive catalysts should prevent investors from buying the dip. On the other hand, the steep valuation discount versus its peers also implies a limited potential downside from current levels.

Price Action

Shares of Hanesbrands were trading higher by 1.7 percent Thursday at $18.27.

Related Links:

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Hanesbrands Loses A Longtime Bull