Apparel Stocks

Hanesbrands Inc Valuation – March 2018 $HBI

Company Profile (obtained from Marketwatch): Hanesbrands, Inc. is a consumer goods company, which engages in the design, manufacture, sourcing, and sale of men’s and women’s basic apparel. It operates its business through the following segments: Innerwear, Activewear, Direct to Consumer, and International. The Innerwear segment focuses on core apparel products, such as intimate apparel; men’s underwear; kids’ underwear and socks; marketed under various brands. The Activewear segment serves activewear and casual wear markets through its Hanes, Champion, Just My Size, and Duofold brands, where it sells products such as T-shirts and fleece to both retailers and wholesalers. The Direct to Consumer segment operations include its outlet stores and Internet operations. The International segment includes products that span across the Innerwear and Outerwear segments. The company was founded by J. Wesley Hanes in 1901 and is headquartered in Winston Salem, NC.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of HBI – March 2018

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 $7,309,331,246 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.90 Fail
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 144.07% Pass
6. Moderate PEmg Ratio PEmg < 20 18.35 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.79 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 1.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.30 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

EPSmg $1.11
MG Growth Estimate 7.01%
MG Value $24.91
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $16.04
MG Value based on 0% Growth $9.40
Market Implied Growth Rate 4.92%
Current Price $20.29
% of Intrinsic Value 81.46%

Hanesbrands Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.75 in 2014 to an estimated $1.11 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.92% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Hanesbrands Inc. revealed the company was trading above its Graham Number of $8.59. The company pays a dividend of $0.6 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.35, which was below the industry average of 40.48, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.73.

Hanesbrands Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.73
Graham Number $8.59
PEmg 18.35
Current Ratio 1.90
PB Ratio 10.79
Current Dividend $0.60
Dividend Yield 2.96%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $3,386,370,000
Total Current Liabilities $1,778,745,000
Long-Term Debt $3,702,054,000
Total Assets $6,894,775,000
Intangible Assets $2,569,864,000
Total Liabilities $6,208,573,000
Shares Outstanding (Diluted Average) 364,863,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.72
Dec2017 $0.17
Dec2016 $1.40
Dec2015 $1.06
Dec2014 $0.99
Dec2013 $0.81
Dec2012 $0.41
Dec2011 $0.67
Dec2010 $0.54
Dec2009 $0.14
Dec2008 $0.34
Dec2007 $0.33
Jun2006 $0.84
Jun2005 $0.57
Jun2004 $1.17
Jun2003 $1.11
Jun2002 $0.88

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.11
Dec2017 $0.83
Dec2016 $1.08
Dec2015 $0.88
Dec2014 $0.75
Dec2013 $0.59
Dec2012 $0.46
Dec2011 $0.46
Dec2010 $0.38
Dec2009 $0.35
Dec2008 $0.52
Dec2007 $0.68
Jun2006 $0.87
Jun2005 $0.84
Jun2004 $0.86
Jun2003 $0.61
Jun2002 $0.29

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – December 2016
14 Best Undervalued Stocks of the Week – 8/6/16
Hanesbrands Inc Valuation – August 2016 $HBI
5 Undervalued Stocks Near Lows for Enterprising Value Investors – Aug 2016
26 Best Stocks For Value Investors This Week – 2/6/16

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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