Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Companies Benjamin Graham Would Invest In Today – February 2016.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at howÂ Hanesbrands Inc (HBI)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Hanesbrands Inc. is a manufacturer and marketer of apparel. The Company operates through four segments: Innerwear, Activewear, Direct to Consumer and International. The Company’s innerwear and activewear apparel brands include Hanes, Champion, Bali, Playtex, Maidenform, JMS/Just My Size, L’eggs, Flexees, barely there, Wonderbra, Gear for Sports and Lilyette. Its international brands also include DIM, Nur Die/Nur Der, Zorba, Rinbros and Shock Absorber, among others. The Company’s Innerwear segment focuses on apparel products, such as intimate apparel, men’s underwear, children’s underwear and socks. In the activewear market, it sells products, such as T-shirts and fleece to both retailers and wholesalers. Its Direct to Consumer operations include its domestic Company-operated outlet stores, catalogs and Website operations that sell its branded products to consumers in the United States. The Company’s international markets are Europe, Canada, Japan, Mexico, Brazil and Australia.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of HBI – February 2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$11,809,217,451||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.08||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||101.34%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||32.64||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||9.79||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||2.08||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||1.39||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$13.49|
|MG Value based on 0% Growth||$7.91|
|Market Implied Growth Rate||12.07%|
|% of Intrinsic Value||84.77%|
HanesbrandsÂ IncÂ qualifies for the Enterprising Investor but not the more conservative Defensive Investor. Â The Defensive Investor is concerned with the short dividend history, and the high PEmg and PB ratios. Â The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. Â As a result, all Enterprising InvestorsÂ following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation,Â the company appears to be fairlyÂ valued after growingÂ itsÂ EPSmg (normalized earnings) from $0.46 in 2011 to an estimated $0.93 for 2015. Â This level of demonstrated earnings growth supports the market’s implied estimate of 12.07% annual earnings growth over the next 7-10 years.Â As a result, the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic valueÂ within a margin of safety relative toÂ the price.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$3.24|
|Number of Consecutive Years of Dividend Growth||3|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||Sep2015|
|Total Current Assets||$3,265,454,000|
|Total Current Liabilities||$1,572,137,000|
|Shares Outstanding (Diluted Average)||402,979,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.21|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.93|
Other ModernGraham posts about the company
|12 Best Stocks For Value Investors This Week â€“ 11/7/15|
|The Best Companies of the Apparel Industry â€“ June 2015 $GPS $HBI $KORS $RL $VFC|
|The 16 Best Stocks For Value Investors This Week â€“ 8/1/15|
|Hanesbrands Inc. Analysis â€“ Initial Coverage $HBI|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
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