Apparel brands rely heavily on a successful advertising campaign. Innovation is another important point. When both come together, intelligent publicity and increasing profits result. The past “no tags” campaigns by Hanesbrands Inc. (NYSE:HBI) hit the nail in the head. Let us look at the company’s present and future, as well as a couple of its rivals in the form of V.F. Corporation (NYSE:VFC), and Gildan Activewear Inc (USA) (NYSE:GIL).
Opening the way to profits
Having recently established its headquarters in Switzerland, V.F. Corporation (NYSE:VFC) designs, produces, and sources apparel and footwear. The firm’s focus is on jeans, intimate apparel, daypacks, and workwear. Most recently, the company has allocated funds to improve safety at production facilities in Asia.
At this time, V.F. Corporation (NYSE:VFC) is going through its lower part of the cycle, aggravated by an adverse economic environment. Later, the company will continue to diversify and strengthen its portfolio through international acquisitions and expansion. This will drive growth and improve the use of its manufacturing and distribution facilities. In all, the company’s business model is very well positioned to bring in further revenues and profits.
Financially, V.F. Corporation (NYSE:VFC) is strong. Revenues and net income have both seen increments during the last five years. Cash flow saw increments in the same period, but excess was destined to complete acquisitions. On the other hand, operating margin remained stable in the low-teens, and today stands at 13.8%. The company’s debt has been associated with new acquisitions.
Trading at 19.4 times its earnings, packing a 24% discount to the industry average, a yield of 1.68% and dividends of $0.87, a price tag at the 52-week high, the stock is undervalued and appealing. It is recommended to BUY because further expansion and portfolio strength have secured V.F. Corporation (NYSE:VFC)’s future growth.
Exploring a profitable path
A producer and distributor of branded clothing, Gildan Activewear Inc (USA) (NYSE:GIL) is based in Montreal, Canada. Most of its production facilities are located in Central America and the Caribbean, however. Lately, the firm has made the news by signing an agreement for the acquisition of New Buffalo Shirt Factory.
For the moment, Gildan Activewear Inc (USA) (NYSE:GIL) continues to report year-to-year revenue increments, in part due to lower cotton costs and greater retail exposure. Further ahead, the company’s business model will continue to benefit from lower productions costs, investments in technology, and lower shipping and tariffs costs. The company will continue to expand its printwear business and will fully integrate its latest acquisitions to secure future profits.
Gildan Activewear Inc (USA) (NYSE:GIL)’s balance sheet is moderate. Although revenues and net income have seen increments during the last five years, its debt has risen considerably. Nevertheless, the company’s debt has not turned into an issue and management has already noticed and addressed it. The company’s cash flow is healthy, and it has generated the necessary funds to complete acquisitions. Its operating margin stands at 13.5%, having lost 5 points compared to a decade ago.
Trading is at 18.9 times the company’s earnings, Gildan Activewear Inc (USA) (NYSE:GIL) shoulders a 25% discount to the industry average. It yields 0.81% and pays a $0.09 dividend, and currently has a price tag at a 52-week record high. The company’s stock is undervalued, but is also currently overpriced. It is recommended to HOLD until the price drops to at least $40.
Looking for the right path
Based in Winston-Salem, North Carolina, Hanesbrands Inc. (NYSE:HBI) designs, manufactures, sources, and sells innerwear, outerwear, and hosiery products under strong consumer brands. The firm has been relocating its facilities to Central America and Asia, however. Lately, the firm made the news when former PetSmart, Inc. (NASDAQ:PETM) CEO Robert Moran joined the board of directors.
Today, Hanesbrands Inc. (NYSE:HBI) continues to improve its performance by lowering input prices while its concentration is driven towards premium brands. The company is wrestling with an adverse economic environment in the US and Europe, however. For tomorrow, the company is set to carry on exploiting its strong brand portfolio, while increasing its market gains through innovation. This will further deepen its lower input policies and push its premium brands.
Revenue and cash flow have surprisingly stood at the same level during the last decade. On the other hand, the company’s net income has seen a 50% reduction in the same period. Its operating margin has not seen many changes, currently standing at 11% which is above the industry average. Its debt saw a reduction during the last five years, an improvement after rising to worrying levels.
Currently trading at 17.3 times its earnings, which is a 31% discount to the industry average, Hanesbrands Inc. (NYSE:HBI) offers a 0.38% yield and has a price tag very close to its 52-week high. As a result, the company’s stock is undervalued. It is recommended to HOLD until debt levels are further reduced. At this time, the risks associated with a high debt and adverse economic environment make the company a risky long-term investment.
I prefer V.F. Corporation (NYSE:VFC) to Gildan Activewear Inc (USA) (NYSE:GIL) or Hanesbrands Inc. (NYSE:HBI) because the company currently holds a stronger financial position while its market positioning allows it to compete with any one business. It also offers a higher yield and holds greater potential for making profits when expanding to the European and Asian market.
Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Socks, Underwear, or Print: Apparel Companies with a Future originally appeared on Fool.com.
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