HanesBrands (NYSE: HBI) Stock Analysis with Valuation Example

Today we are looking at HanesBrands (NYSE:  HBI).  The reason for this is based on screening some basic financial metrics.  HanesBrands is looking like an interesting investment option right now.  They just missed on earnings and lowered forecasts and the stock went down over 16% on Friday.  Annual sales and earnings actually grew but did not meet expectations.  Sales were 1.58 billion while earnings per share came in at $0.41.  Hanes also spent more money that it earned from operations in the prior four quarters.  The main reason for this was the completion of Pacific Brands acquisition for about $800 million in 2016.  They are expecting Pacific Brands to contribute approximately $70 million in adjusted operating profit annually.

The company is number one or number two in terms of market share in their key categories per the data provided below.

Financial Characteristics

	HBI	Industry
PE	13.50	26.43
ROEQ	42.30	53.09
YLD	3.20%	1.75%
PM	8.90	6.02
Price to Sales	1.19	3.63
Price to CF	11.21	17.21

HBI Current Quote:  $18.98

PE 13.50       Est. LT Gr Rate:  10.13%

EPS 1.41          PE Range of Last 5 Yrs:  13.50 – 27.89

Future Earnings per Share = 1.41 * (1 + 10.13%)¹⁰ = $3.70

Future Stock Price = future price * expected future PE = $3.70  * 20 = $74.00

PV = Future Stock Price *(1 / (1+interest rate you want to earn) ¹⁰ )

PV = 74 * (1/1.10) ¹⁰ = $28.53

PV = 74 * (1/1.05 ) ¹⁰ = $45.43

 

Risks

• ·         Integrating acquired businesses – the cost savings assumed when purchasing require consolidating certain areas, eliminating duplicate positions, and standardizing business practices.
• ·         Regulatory, political, economic risks – this is a risk for any consumer products company.  Economic conditions may impact demand for products.  However, in the case of Hanes, the majority of their products are replenishment in nature rather than impulse purchases.