Despite Hanesbrands’ (NYSE:HBI) diversified portfolio of well-known brands such as Hanes, Champion, and Maidenform, it has faced declines in revenue, profit margins, and earnings per share. Given the stock’s recent lackluster performance – essentially a 0% return over the past year – long-term investors may wish to revisit it once the transition of the Champion brand has been successfully executed.
Mature Conglomerate with Slowing Growth
Hanesbrands, Inc., is a global apparel consumer goods company that specializes in the design, manufacture, and sale of everyday basic innerwear and activewear.
The company has seen revenue, profit margins, and earnings per share decline over the past few years, and the most recent Q4 results fell short of analysts’ expectations. Revenue for the quarter was slightly under $1.3 billion, down 12% year-over-year and shy of the $1.36 billion expectation. Further Non-GAAP (adjusted) EPS of $0.03 per share fell well short of analyst estimates of $0.09.
Selling a Crown Jewel
Under fiscal pressure due to declining sales and a highly leveraged balance sheet, the company is looking to sell its Champion brand. Champion’s sales experienced a steep 23% year-over-year downturn in Q4 2023, significantly underperforming the innerwear segment of the apparel manufacturing industry.
The proposed sale of Champion presents an opportunity for Hanesbrands to improve its financial stability by diminishing its debt load. Meanwhile, the potential sales could streamline the company’s focus to more attractive and stable investment opportunities, particularly given its long-term success in the innerwear market, where it has grown at double the industry rate.
The divestment of Champion could be a catalyst for enhanced future performance, depending on the company’s ability to stabilize growth in the innerwear segment (minus the anchor of Champion’s negative performance) and successful new product launches.
Analysis of HBI Stock
HBI stock has been flat over the past year but has shown positive price momentum year-to-date. Its recent share price of $5.47 is at the high end of its 52-week range of $3.54-$5.70.
Technical indicators are mixed, with the stock trading above the 20-day moving average price of $4.93 and a 50-day moving average price of $4.61. The upward price momentum suggests the stock may continue to see positive price movement in the near future. However, the RSI(14) for HBI of 69.99 is bumping into the upper threshold of the neutral zone (30-70), indicating that the stock may be flirting with the overbought territory, so a mean-reversion is possible.
At this price level, the relative valuation and enterprise metrics (PE, PS, EV/EBITDA) are in line with or slightly above the Consumer Cyclical Sector and Apparel Manufacturing Industry averages, suggesting the stock is fairly valued.
Overall, with its positive momentum, HBI’s stock price could continue to climb, but it is starting to look overbought and heading toward a rich valuation, suggesting a pullback is entirely possible.
Is HBI a Good Stock to Buy?
Wall Street analysts covering the stock are mainly taking a wait-and-see approach. Most have reiterated a Hold recommendation while lowering their price targets based on Q4 performance. In a recent report, Citi analyst Paul Lejuez suggested that the negative sentiment surrounding the stock is already priced in, leading to a neutral outlook at this time.
TipRanks lists HBI as a Hold based on six analysts’ stock ratings in the past three months (five Holds and one Sell). Based on the 12-month price targets from these analysts, the average target is $4.25, with a range of $3.50-$4.50. The average price target represents a 22.3% downside from current levels.
Final Thoughts
Hanesbrands is a mature, global apparel conglomerate that has been facing challenges with declining revenue, profit margins, and earnings. Perhaps selling off its Champion brand to alleviate debt and focus on growth could mark a turning point, but that remains to be seen.
Given this lack of clarity and the stock’s current valuation, potential investors are advised to approach the stock with caution or revisit it for another look after the successful sale of the Champion brand.
