Gildan Activewear Inc.
(GIL-N, GIL-T) US$35.45 | $44.60
Q1/22 Preview: We Anticipate a Strong Start to 2022
Event
Gildan is scheduled to report its Q1/22 results on May 4th.
Impact: NEUTRAL
Q1/22 Preview: We forecast strong y/y EPS growth based on our channel checks and the positive content/outlook provided at Gildan's investor day just two weeks ago. We believe the imprintable demand environment remains buoyant which should benefit Gildan's top line through volume, product mix, pricing power, onshoring, and market share gains. The combination of sales growth and cost containment should offset inflationary pressures in our view and drive y/y operating margin expansion. Our Q1/22 adjusted EPS forecast is just under 10% above consensus, and represents >40% y/y growth excluding one-time items.
Return of Capital: Gildan purchased >5mm shares, or ~2.5% of its shares outstanding in Q1/22. Recall in mid-February the company increased the size of its NCIB limit from 5% of its public float to 10% (~19.5mm shares). We anticipate the company to remain active looking forward as Gildan remains well below its target leverage ratio, in addition to its attractive outlook for FCF.
Macro Headwinds: We acknowledge that rising bond yields, escalating inflation, and growing economic concerns are likely to increase pressure on the spending capabilities of the average consumer. That said, while imprintable demand has roared back from the depths of the pandemic, we highlight that several of its key markets still remain in the early stages of recovery. We also believe the trends of casualization, digital printing, nearshoring, and private label penetration potentially increase the size of Gildan's total addressable market.
Conclusion: It is our view that Gildan is the most likely candidate within our coverage universe to exceed consensus expectations in Q1/21. We view the recent share price decline as both a short term opportunity and longer term value play.
TD Investment Conclusion
We maintain our BUY rating on Gildan. We view the current valuation as attractive and believe that near term earnings outperformance could act as a catalyst and provide investor confidence in the mid-to-long term earnings outlook.