Hanesbrands, Inc. (HBI)

Hanes Brands has too much debt, but its stock price is rallying as the wider stock market surges. I think HBI is due for a fall.

This stock looks like a reasonable deal if you merely look compare its 2009 consensus earnings estimate (i.e. $1.60) to its current price (i.e. $20.18). Digging deeper, you realize that this company re-leveraged itself in 2006 and is saddled with lots of term debt. My estimate is that the company must use 100% of earnings to pay down debt for the next 10 years. At 7.7 times book value, I think this company is a reasonable underperform pick. Stock Scouter rating is 4.

Cyclical action in an uncertain market in an adverse environment.

PEG = 1

Will write my pitch on the stock later

I disagree that Hanes is entirely commoditized: it isn't Gucci, but you are still paying for the brand. Shoppers recognize the relative quality you get for the price, and thats why, simply put, they are #1 or #2 in EVERY product segment they are in. Also, even though their share price hasn't fared so well, they have really taken advantage of the current economic situation: their variable debt (the biggest concern of an HBI investment) has recently been locked in at current rates for the next few years. This is going to reduce interest expense almost 100m.

Moreover, they have huge room for margin improvement. Look at Gildan. Their top line growt is fine, but they've become such a powerhouse with their industry-leading gross margins. Hanes, on the other hand, is consistently introducing compatible product and product lines and co-branding and co-selling efforts (the former with Disney and the latter with Wal-Mart, Zellers, etc.). But, they have huge room for margin improvement, and their new strategy allows them to increse margins by 50-100 bps PER YEAR for the next 3 years.

Bottom line growth is gonna move this one.

The quality of this company's earnings is dubious at best. At worst, it is blatant manipulation to the fullest extent allowable under the law. Let's review the company's first quarter earnings results. Out of thin air, the company suddenly reduced its allowance for doubtful accounts by a whopping $11.8 million, or 38%. Then a currency benefit kicked in another $11 million. Oh, and don't forget the $2 million from lower cotton costs. Hello? Last I checked cotton prices have surged over the last 12 months. All of this of was done of course so that the company could report double-digit earnings growth on a 5% decline in sales! Oh, and so that the company could beat earnings expectations, of course. Buy the underwear, not the stock.

Increased competition within their biggest buyer (WalMart), rising commodity prices and rising inventories don't paint a pretty picture.

Mounting inventories will squeeze this underwear blue chip

Cost structure too high.

Hanesbrands is in the midst of a restructuring plan. The price of this stock reached a new 52-week high of $36.8800 on an intraday basis. Cramer states "That's a remarkable turn-around company.” I think it should be at least a 20% growth over the next 3-4 years. They focus on lower cost items, perfect for our uncertain economy at this time.

Highly rated, low PEG, low P/S.

I'm wearing Michael Jordon's underwear...They have catchy commercials and I think they will do OK.

Hanesbrand will continue to be steady and consistant. We will always be needing comfortable t-shirts and underwear and durability counts for something.

People will always need undergarments. Since being spun off from Sara Lee it has improved image and kept product on people's conciousness.

Buying HBI is one of the best opportunities to invest like a private equity investor using the leverage of debt with strong cash flow to financially engineer strong returns over time.

Can be a core portfolio holding.

Quite stable consumer staple business.

Lower interest rates which are likely in 1H08 will lower important financial costs.

At the same time, cash flow will allow pay down of inherited post-spinoff debt.

Seems to have been hit recently by shorters blindly hitting anything consumer

I wear lots of hanes, so does everyone else.

Strenght in distribution. Lowering mft costs. Strongh brand Names.

Will go back to 26$ level.