Multiple UpgradesTime to get this BB cranked up again. GLTA
Following a “strong” first quarter with sales coming in “well above” expectations, Citi analyst Paul Lejuez thinks Gildan Activewear Inc.’s path to its target of reaching an operating margin of 18 per cent is “getting more clear.”
Mr. Lejuez said that objective depends on revenue recovering to 2019 levels, which he projects to occur in fiscal 2022, however he did warn there “could be some bumps along the way as comfort around large gatherings (concerts, sporting events) may ebb and flow.”
On Wednesday, the Montreal-based manufacturer reported adjusted earnings per share of 39 US cents, blowing past both Mr. Lejuez’s 21-US-cent projection and the consensus estimate of 19 US cents. Sales rose 28 per cent, topping the Street’s expectation of 6 per cent.
“Activewear performed very well (up 30 per cent) and was slightly below 2019 levels, though benefitted from restocking,” said the analyst. “Hosiery & Underwear also performed well up 21 per cent but remains 20 per cent below 2019 levels. Management commented that POS is trending down 10 per cent, slightly better than 1Q. Adjusted gross margin expanded 340 basis points to 34.1 per cent and is expected to remain near these levels for the rest of the year.”
Citing the “strong” sales results and an improving margin outlook, Mr. Lejuez increased his 2021 and 2022 EPS estimates to US$1.99 and US$2.50, respectively, from US$1.63 and US$2.14.
That led him to raised his target for Gildan shares to US$36 from US$31 with a “neutral” recommendation (unchanged). The average on the Street is US$36.86.
“GIL is a leader in the ‘imprintable’ activewear market and has developed a solid innerwear (underwear and hosiery) business,” said Mr. Lejuez. “Although being a low-cost producer enables the company to pivot and win private label business as mass merchants move away from branded products, this still results in GM pressure. In addition, there is limited visibility in the activewear business in 2020 and 2021 and the macroeconomic environment is very uncertain.”
Other analysts making target changes include:
* RBC Dominion Securities’ Sabahat Khan to US$41 from US$35 with an “outperform” rating.
“Gildan reported strong Q1 results which reflected better-than-expected performance across the Income Statement,” said Mr. Khan. “The outperformance relative to our forecasts was driven by stronger-than-expected contribution from the Activewear segment, where trends have improved well ahead of Street expectations. Management commentary indicated that trends improved sequentially into Q2 (more on this below), and the improved outlook has led the company to reinstate its dividend (following its suspension in Q1 2020). We are encouraged by the strong Q1 print and the supportive commentary regarding demand trends, and have revised our 2021 and 2022 forecasts higher to reflect our improved outlook.”
* BMO Nesbitt Burns’ Stephen MacLeod to US$41 from US$37 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 in H2/21E and into 2022E,” he said.
* Desjardins Securities’ Chris Li to $51 (Canadian) from $45 with a “buy” rating.
“GIL’s stronger-than-expected 1Q results show that the recovery is on track and ‘Back to Basics’ has rightsized GIL’s cost structure to support its 18-per-cent EBIT margin target once sales return to pre-pandemic levels. While trading will likely remain volatile in the near term, we reiterate our positive long-term view,” said Mr. Li.
* CIBC World Markets’ Mark Petrie to US$41 from US$36 with an “outperformer” rating.
“We continue to believe GIL is well-positioned to benefit from economic recovery and re-opening of large events and tourism. We see 2019 revenue as achievable in 2022, and expect margins to close in on the 18-per-cent operating margin target, and cash flow to remain robust,” said Mr. Petrie.
* Scotia Capital’s Patricia Baker to US$42 from US$37 with a “sector outperform” rating.
* National Bank’s Vishal Shreedhar to $50 (Canadian) from $45 with an “outperform” rating.