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A Look at Hanesbrands’ Valuations

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May. 1 2018, Updated 7:32 a.m. ET

Valuations

Hanesbrands (HBI) is currently among the cheapest apparel stocks, as it’s trading at a one-year forward price-to-earnings (or PE) ratio of ~10.0x. In comparison, apparel players PVH Corp. (PVH), Tapestry, and Ralph Lauren (RL) are currently valued at 17.6x, 19.0x, and 17.6x, respectively. So, is Hanesbrands a buy at current valuations? To answer this question, let’s look at the company’s earnings expectations.

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One-year forward earnings expectations

As we discussed in the previous article, Hanesbrands’ (HBI) earnings per share (or EPS) are expected to decline 9.0% over the next 12 months (or NTM). Its management remained cautious about the wholesale landscape in the US in 2018, and it projects rising input costs and increased marketing investments for the year.

Ralph Lauren could witness an ~4.0% jump in NTM EPS, while PVH and Tapestry expect their earnings to increase 15.0% and 14.0%, respectively. Although these companies are more expensive than HBI, a better earnings upside makes them more attractive than Hanesbrands.

Wall Street’s take

Hanesbrands’ (HBI) deteriorating profitability in fiscal 2017 took a toll its ratings, as its operating margin fell 100 basis points. Wall Street gave HBI a 1.9 rating in April 2017. However, analyst downgrades lowered its rating to 2.4. Ratings range from 1.0 (strong buy) to 5.0 (strong sell).

However, Hanesbrands was recently upgraded by Stifel from a “hold” to a “buy” on April 23. Analyst Jim Duffy expects strong growth from HBI’s international business, digital channel, and the Champion brand. He believes that the company can easily meet its 1Q18 expectations on May 1.

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