Tuesday, UBS has upgraded Hanesbrands (NYSE:HBI) from Neutral to Buy and increased the price target to $11.00 from $9.00. The firm indicates that Hanesbrands is on the cusp of a positive shift in its business fundamentals, which is expected to lead to a significant increase in earnings per share (EPS) growth over the next year.
The analyst anticipates a compound annual growth rate (CAGR) of approximately 24% in EPS following the current fiscal year (FY24). This expected growth is projected to result in upward revisions to EPS forecasts. UBS has set its FY25 EPS estimate at 12% higher than the consensus.
The firm's valuation of Hanesbrands is based on a 13 times price-to-earnings (P/E) ratio, which they consider appropriate given the anticipated growth. Historically, the stock has traded at an average P/E ratio of around 9 times over the past five years. The analyst suggests that this lower historical valuation is due to weak investor sentiment toward the company.
UBS expects that Hanesbrands' stock multiple will sustain levels above its historical average throughout the calendar year 2025 (CY25). The firm believes that this sustained higher valuation will contribute to the stock reaching the newly set price target of $11.00, which represents a potential increase of approximately 27% from the current stock price.
In other recent news, Hanesbrands has been the subject of multiple noteworthy developments. The company outperformed expectations in its third-quarter earnings, reporting an adjusted EPS of $0.15, surpassing both Wall Street's prediction of $0.12 and the $0.11 estimate from Stifel. The financial services firm, in response, raised its price target for Hanesbrands to $8.00 from $6.00, while maintaining a Hold rating.
Hanesbrands' third-quarter revenue also exceeded estimates, marking the first time since Q1 of 2023. The company's fiscal year 2024 guidance projects revenues to hover around $3.61 billion, with an improved adjusted EPS outlook of $0.39. The firm's strategy focuses on consistent top-line growth, margin expansion, cash generation, and a reduction in interest expenses.
Recent actions, including the sale of the Champion brand and a substantial debt repayment in October, have decreased Hanesbrands' net debt to $2.0 billion. The company aims to reach a sub-3x net leverage range by 2026, supported by profitability improvements. Despite challenges in forecasting top-line growth, margin visibility remains strong through 2025.
Hanesbrands reported a slight decrease in Q3 net sales, attributed to the divestiture of its hosiery business and foreign exchange headwinds. However, the company exceeded its profitability guidance and highlighted success in debt reduction. Looking ahead, Hanesbrands expects Q4 net sales to reach around $900 million, a 3% year-over-year increase, and projects an operating profit of approximately $115 million.
InvestingPro Insights
Recent data from InvestingPro aligns with UBS's optimistic outlook on Hanesbrands (NYSE:HBI). The company's market capitalization stands at $2.98 billion, reflecting recent investor interest. InvestingPro Tips highlight that net income is expected to grow this year, and analysts predict the company will be profitable this year, supporting UBS's projection of significant EPS growth.
The stock has shown strong performance, with a remarkable 124.14% price total return over the past year and a 65.04% return over the last six months. This aligns with UBS's view of improving investor sentiment. The P/E ratio (adjusted) of 242.69 for the last twelve months as of Q3 2024 suggests investors are pricing in future growth expectations.
However, it's worth noting that Hanesbrands' revenue growth has slowed, with a 2.52% decline in quarterly revenue as of Q3 2024. This could present challenges to the company's growth narrative.
InvestingPro offers 13 additional tips for Hanesbrands, providing a more comprehensive analysis for investors looking to dive deeper into the company's prospects.
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