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Should You Buy the Dip in Hanesbrands Stock?

Iconic apparel brands marketer Hanesbrands (HBI) delivered strong revenue and profit in the third quarter, driven by momentum in its activewear and innerwear businesses. And because the demand for athleisure is expected to accelerate with more consumers adding comfort wear to their wardrobes, HBI is well-positioned to see strong sales growth in the near term. So, now that the stock is trading below its 52-week high, is it the perfect time to scoop up its shares? Let’s discuss.

Winston-Salem, N.C.-based leading marketer of basic apparel Hanesbrands Inc. (HBI) manufactures, designs, and sells activewear and innerwear apparel under Hanes, Champion, Maidenform, DKNY, and various other brands worldwide. The clothing company reported solid revenue growth in the third quarter, with operating profit and EPS exceeding guidance thanks to continuing demand for athleisure and comfort wear. 

HBI’s shares have rallied 11.2% in price so far this year, driven by the company’s enhanced e-commerce capabilities. The stock is currently trading 29% below its 52-week high of $22.82.

The launch of a limited-edition collection of its Champion Athleticwear brand with Hasbro Gaming is expected to boost its sales during the holiday season. Furthermore, with brick-and-mortar stores reopening in Australia and with its ramping-up of partnerships in China, the apparel company is poised to grow significantly.

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Here is what could shape HBI’s performance in the coming months:

Favorable Analyst Estimates

Analysts expect HBI’s EPS to increase 15.8% year-over-year to $0.44 in the current quarter, ending December 2021. Its consensus EPS estimates indicate a 26.2% increase in the current year and a 4.9% increase in fiscal 2022. Also, its EPS is expected to grow at 16.1% over the next five years. HBI has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in each of the trailing four quarters.

A $1.58 billion consensus revenue estimate for the next quarter, ending March 2022, indicates a 4.9% improvement year-over-year. Also, its revenue is estimated to increase 3.9% year-over-year to $7.07 billion in 2022.

Strategic Collaboration

This month, HBI’s Champion brand, in partnership with Hasbro Gaming, announced a limited-edition footwear and apparel collection. The new apparel and footwear line feature global board game favorites like Monopoly, Twister, Scrabble, and Candy Land.

Jon Ram, Group President of Global Activewear at Hanesbrands Inc, said, "Spirited play, competition, and board games go together during the holiday season, and this collection lets fans look good doing it.” Given the popularity of these games among all ages, Champion’s limited-edition collection, in collaboration with Hasbro Gaming, should help the company witness a surge in sales in the coming months.

Robust Demand for Athleisure

The global athleisure market is expected to reach $549.41 billion by 2028, registering an 8.6% CAGR. With athleisure fashion trends gaining ground as more people focus on fitness, there is burgeoning demand for activewear. Also, as more consumers seek comfortable clothing, especially at workplaces and social gatherings, the activewear category is expected to grow rapidly.

Consequently,  HBI’s expanding activewear product line and improvements in core e-commerce capabilities should help it witness strong demand in the fast-growing market.

Solid Top and Bottom-Line Performance

HBI’s activewear sales grew 42% year-over-year in the third quarter, ended October 2, 2021. This was driven primarily by double-digit growth in the Champion and Hanes brands. Its net sales from continuing operations rose 6% from the prior-year period to $1.79 billion, while U.S. innerwear sales increased 12%. The company’s adjusted operating profit came in at $264 million, representing a 9% increase year-over-year.

Also, its net income amounted to $151.78 million, up 47% from the same period last year. HBI’s cash and cash equivalents at the end of the period stood at $890.44 million, compared to $731.48 million in the prior-year period.

POWR Ratings Reflect Promising Outlook

HBI has an overall B rating, which translates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. HBI has a B Value grade. The stock’s 8.87x non-GAAP P/E, which is  39.2% lower than the 14.60x industry average, is in sync with this grade.

Click here to see the additional POWR Ratings for HBI (Stability, Sentiment, Growth, Quality, and Momentum).

The stock is ranked #42 of 63 stocks in the A-rated Fashion & Luxury industry.

Bottom Line

HBI’s strong revenue growth from increased innerwear and activewear sales across its brand portfolio and continued investment in enhancing its e-commerce platform should help the company maintain its dominant position in the apparel market. In addition, the growing popularity of activewear should help the stock price soar in the coming months. So, it could be wise to bet on the stock now.

How Does Hanesbrands Inc. Stack Up Against its Peers?

HBI has an overall B rating in our proprietary rating system. Check out these other stocks within the Fashion & Luxury industry with an A (Strong Buy) rating: J. Jill, Inc. (JILL), Shoe Carnival, Inc. (SCVL), and Caleres, Inc. (CAL).

HBI shares were unchanged in premarket trading Monday. Year-to-date, HBI has gained 14.81%, versus a 27.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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