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Comparing Hanesbrands’ Valuations to Peers

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Aug. 9 2016, Updated 10:06 a.m. ET

HBI’s current valuations

In this final part of our series, we’ll evaluate Hanesbrands’ (HBI) current valuations, compare them to its apparel and accessory peers, and look at the company’s earnings forecasts.

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Is HBI a good pick?

HBI can be considered a good pick from the apparel and accessory sector based on following three points:

  1. It’s operating at the lower end of its 52-week PE (price-to-earnings) range.
  2. It’s cheaper than most other apparel company peers.
  3. It has solid earnings forecasts.

Analysis

HBI is currently trading at a one-year forward earnings multiple of 11.9x. This is the lowest PE ratio for HBI over the last one year. The company’s valuations have continuously deteriorated since March when it touched a PE of 16.4x, the upper end of its current 52-week PE range.

Not only is the company operating at the lower end of its earnings multiples, it’s also among the cheapest in the apparel and accessories peer group. PVH (PVH) and Ralph Lauren (RL), which had lower valuations than HBI at the beginning of the year, are trading at 14.3x and 17.2x, respectively.

VF (VFC) and Kate Spade (KATE) are trading at 18x and 24.2x, respectively. Only Micheal Kors (KORS) is currently cheaper than HBI. It’s trading at a PE ratio of 11x as of August 4, 2016.

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The company’s valuations don’t seem to justify its earnings potential. The company is predicted to increase its EPS (earnings per share) by 16% in fiscal 2016, followed by a 15% increase in fiscal 2017. In comparison, RL’s and PVH’s earnings are predicted to decline by 0.5% and 7%, respectively, in their next fiscal years.

Wall Street ratings for HBI

Wall Street seems to be quite positive on HBI stock. Analysts have given it a target price of $34.27. This indicates a 36.5% upside from its current level of $25.08.

Of the 16 analysts that have rated HBI, 13 have recommended a “buy,” and three have recommended a “hold.” None of the analysts have a “sell” rating for the stock.

Investors wanting to get exposure to HBI can consider pooled investment vehicles such as the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests 0.41% of its portfolio in HBI.

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