Many investors make the mistake on days like today of selling their best stocks instead of their worst. As a long term investor, I was pleased to pick up some more on this morning's decline. GLTA
Citi’s Paul Lejuez sees Gildan Activewear Inc. in a “favorable position” to benefit from a reopening economy and “take advantage of its low-cost-provider status to take share.”
He was one of several analysts on the Street to raise their financial projections for the Montreal-based clothing manufacturer following Wednesday’s premarket release of better-than-anticipated fourth-quarter financial result and quarterly dividend increase (to 16.9 US cents from 15.4 US cents), which sent its TSX-listed shares up 3.5 per cent.
For the quarter, sales of US$784.3-million topped the Street’s estimate of US$765-million, driven by higher activewear prices and volumes. Earnings per share of 76 US cents also easily exceeded the consensus projection of 60 US cents.
“GIL reported a strong quarter and, more importantly, revised its operating margin outlook range to 18-20 per cent after previously indicating the long-term rate was likely capped at approximately 18 per cent,” said Mr. Lejuez. “GIL is currently working to internalize Frontier Yarn’s capacity, which will allow the company to operate its Central America facilities near full capacity. Management expects to be able to internalize 90 per cent (vs 65 per cent prior to the acquisition) of its yarn needs by 3Q22. This vertical integration gives GIL a strategic advantage vs its competitors, and despite taking a 2-3-per-cent price increase in 4Q, the company’s price gaps vs competitors have never been wider. Ultimately we believe the company’s 7-10-per-cent sales growth will prove conservative as the marketplace remains constrained and there is still a $150-200-million restocking opportunity for GIL.”
Raising his 2022 earnings per share projection to US$3.15 from US$3 to reflect an improved margin outlook, Mr. Lejuez kept a “buy” recommendation and US$48 target. The average target on the Street is US$49.74.
“GIL is a leader in the ‘imprintable’ activewear market and has developed a solid innerwear (underwear and hosiery) business,” he said. “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,
Desjardins Securities’ Chris Li thinks greater confidence in Gildan’s bullish longer-term sales growth outlook should drive multiple expansion.”
“GIL’s strong 4Q and bullish three-year growth outlook reflect strong demand and benefits from Back to Basics initiatives,” said Mr. Li. “Based on the low end of GIL’s three-year sales growth and margin targets, we estimate almost 12-per-cent annual EPS growth in 2023 and 2024, with upside potential.”
Mr. Li raised his target to $63 from $59 with a “buy” rating.
Others making changes include:
* RBC’s Sabahat Kahn to US$51 from US$48 with an “outperform” rating.
“We believe 2022 results should reflect top-line growth at the high-end of the guidance range, driven by the outlook for strong volume growth and some pricing increases in 2022,” he said. “On the margin front, the non-recurrence of a cotton-related gain recorded in Q1/21 and some inflation headwinds should lead to year-over-year EBIT margin moderation, followed by stronger year-over-year margins through 2023 and 2024. Overall, we forecast meaningful Adjusted EPS growth over the next 3 years (11.0-11.5-per-cent 3-year CAGR), and believe there is potential for upside to these forecasts (we believe 2022 could be much stronger if the current backdrop holds). We will look for additional color on these targets and Gildan’s strategy at the upcoming Investor Day on March 29/22.”
* Scotia’s Patricia Baker to US$52 from US$48 with a “sector outperform” rating.
“We see GIL advantaged in the current market context by its low-cost manufacturing position and its manufacturing footprint. GIL is ideally positioned to benefit from the moves being taken by apparel companies looking to ‘near shore’,” she said. “The challenges of COVID coupled with the Back to Basics strategy see GIL more agile. GIL also moved to a more offensive push in the market taking advantage of the challenged backdrop to drive share.”
* Canaccord’s Luke Hannan to US$52 from US$47 with a “buy” rating.
“Structural improvement in margins as a result of Back to Basics cost savings, vertically integrated manufacturing operations that provide margin resilience despite intentionally lower levels of price increases, and a healthy balance sheet supportive of further return of capital to shareholders underlie our favourable view on the shares,” he said.
* BMO Nesbitt Burns’ Stephen MacLeod to US$51 from US$50 with an “outperform” rating.
“We continue to believe Gildan is well-positioned to leverage its pricing leadership position to aggressively pursue market share gains. Supporting the topline outlook is recovering demand into 2022E+ and incremental manufacturing capacity coming online over the next two years. We see multiple expansion opportunity in the stock,” said Mr. MacLeod.
* National Bank’s Vishal Shreedhar to $65 from $59 with an “outperform” rating.
* CIBC World Markets’ Mark Petrie to US$49 from US$47 with an “outperformer” rating.
* TD Securities’ Brian Morrison to US$51 from US$50 with a “buy” rating.