Desjardins Downgrades Gildan On Valuation, But Says Apparel Brand Is Making Impressive Progress

Increased demand for active apparel drove Gildan Activewear Inc. GIL’s record second-quarter print, which showed strong revenue growth and a redirection of resources, according to Desjardins. 

The Analyst

Analyst Keith Howlett downgraded Gildan from Buy to Hold and increased the price target from the U.S. dollar equivalent of $31.96 to $33.89. 

The Thesis

Gildan reported adjusted earnings per share of 52 cents Thursday against a 49-cent consensus estimate and 6.8-percent revenue growth. compared to $0.49 in 2017, as well as a revenue growth of 6.8 percent.

“Growth in international markets (outside the U.S. and Canada) increased by 35.2 percent, with China experiencing the greatest growth. The American Apparel brand is expected to have run-rate sales exiting 2018 of US$100 million,” Howlett said in the downgrade note. (See the analyst's track record here.) 

Desjardins' downgrade is on a valuation basis after Gildan shares gained 21.6 percent following the Q2 report, the analyst said. 

Gildan announced plans to obtain three private-label contracts, including seasonal fleece programs, which will likely affect revenue later this year, Howlett said. 

“In response to changing retail channel customer needs as well as consumer behaviour, Gildan has made rapid adjustments to its organizational structure and go-to-market strategy over the last six months,” Howlett said. “This has been in addition to proceeding with existing major initiatives such as commissioning new and/or upgraded production facilities in Honduras and Mexico, and relaunching the acquired American Apparel brand.”

Price Action

Gildan shares were trading down 1.24 percent to $31.18 at the time of publication Friday afternoon. 

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