Analyst Reactions Citi analyst Paul Lejuez said he’s coming away from Gildan Activewear Inc.’s (GIL-N, GIL-T) third-quarter earnings release “even more positive” about both its momentum and competitive positioning.
Shares of the Montreal-based clothing manufacturer jumped 6.8 per cent in Toronto on Thursday after it reported quarterly sales of US$802-million, exceeding the Street’s forecast US$720-million. Adjusted earnings per share of 80 US cents also blew past expectations (52 US cents).
“From a demand perspective, [point of sales] were up versus fiscal 2019 in North America,” he said. “Management indicated they do not have the same inflationary pressures as many of its competitors, which will likely allow their already-favorable price gaps to widen further in 2022 (even after GIL increases prices by 2-3 per cent), as others have more inflationary pressures to pass through. And GIL’s main supply chain bottleneck (procuring yarn) is starting to loosen while many of its competitor’s bottlenecks are tightening (or at least not getting better).”
Mr. Lejuez thinks Gildan remains on track to create incremental $500-million in capacity by the end of the year, which help them make further market shares gains. He raised his fiscal 2021 and 2022 earnings per share projections to US$2.52 and US$3, respectively, from US$2.30 and US$2.85 to also reflect higher sales assumptions and an improving margin outlook.
Seeing its shares as “a stock to own over the long-term,” he raised his target to US$50 from US$44. The average is US$44.92.
“GIL is a leader in the ‘imprintable’ activewear market and has developed a solid innerwear (underwear and hosiery) business,” said Mr. Lejuez. “GIL is a clear leader as the low-cost producer, which enables the company to pivot and win private label business as mass merchants move away from branded products. The company has made several strategic decisions that position them well over the next several years (even beyond F22) to further take market share in the markets they play in. We believe this potential is not yet fully reflected in consensus numbers.”
Elsewhere, Stifel analyst Jim Duffy cut the stock to “hold” from “buy” with a US$43 target, up from US$41.
Others making target changes include:
* CIBC’s Mark Petrie to US$47 from US$43 with an “outperformer” rating.
“Gildan delivered blowout Q3 results, benefitting from strong demand, tight supply and cost discipline,” he said. “We believe end-market demand will remain strong into F2022 and Gildan is well positioned to benefit as capacity ramps up. Operating margins have exceeded the 18-per-cent aspiration for three consecutive quarters, but even a result closer to the target implies attractive upside as revenues build and cash flow remains robust.”
* RBC Dominion Securities’ Sabahat Khan to US$45 from US$43 with an “outperform” rating.
“Gildan reported strong Q3 results which reflected higher-than-expected contribution from both the Activewear and the Innerwear segments,” he said. “The strength in Activewear was driven by higher unit sales reflecting strong POS in the North American imprintables channel (above 2019 levels), partially offset by softer trends in International markets (where POS is trending below 2019 levels). Meanwhile, the Innerwear segment reflected strength in underwear sales volume, which more than doubled over Q3 2019 levels, partly offset by lower sales of socks (sales in this segment were ahead of forecasts and flat year-over-year). Looking ahead, we expect the recovery in the imprintables channel to continue as more markets ‘re-open’ and restrictions on gatherings are eased further. Overall, we are encouraged by the strong Q3 print and the commentary regarding supply/demand trends heading into Q4, and have revised our forecasts higher to reflect this outlook.”
* Desjardins Securities’ Chris Li to $59 from $52 with a “buy” rating.
“GIL’s strong results and management’s outlook increased our confidence that its 18-per-cent EBIT margin target is achievable despite supply chain tightness and inflationary pressures,” he said. “While pricing is an important lever to offset cost pressures, GIL’s vertically integrated manufacturing and Back to Basics benefits position it well to manage through inflationary pressures, achieve its margin target and gain market share.”
* BMO’s Stephen MacLeod to $50 from $43 with an “outperform” rating.
“We continue to believe Gildan is well-positioned to maintain its pricing leadership position and aggressively pursue market share gains as demand continues to recover into 2022,” said Mr. MacLeod.
“We also see margin upside from ‘Back to Basics’ and improved capacity utilization, as Gildan drives volume growth while maintaining or exceeding its 18-per-cent operating margin target.”
* National Bank Financial’s Vishal Shreedhar to $58 from $57 with an “outperform” rating.