Oxford Industries And Gildan Activewear: Citi Suggests A Pair Trade

Both Oxford Industries Inc (NYSE: OXM) and Gildan Activewear Inc (USA) (NYSE: GIL) are small-/mid-cap apparel manufacturers, with more than 90 percent of sales generated in North America. There is, however, “relative upside opportunity” for Oxford Industries versus Gildan Activewear over the next 12 months, Citi’s Corinna Van der Ghinst said in a report.

Van der Ghinst initiated coverage of Oxford Industries with a Buy rating and a price target of $84. Citi’s Kate McShane has a Neutral rating on Gildan Activewear, with a price target of C$38. The analysts believe there are margin expansion and M&A opportunities for both companies.

Why The Pair Trade?

Ghinst highlighted the following reasons for Oxford Industries reflecting greater upside opportunity:

• Stronger Brand Portfolio: While Gildan Activewear sells low-price, commoditized apparel, Oxford Industries has bigger lifestyle brands that have a loyal consumer base. Given an environment where “a strong branded point of view and innovation matter to the consumer,” there seem to be better upside opportunities for Oxford Industries, the analyst noted.
• Higher Potential Growth from DTC [Direct-to-Consumer]: While Gildan Activewear sells mostly wholesale, this represents only ~34 percent of Oxford Industries’ revenues, while DTC comprises about two-third of its total sales. The latter’s DTC exposure could benefit both top-line and margins, Ghinst noted.
• Attractive valuation: Oxford Industries’ shares have traded at a 16 percent premium to Gildan Activewear’s share over the past three years, but are currently trading at a premium of only 13 percent.

At last check, Gildan Activewear was down 1.29 percent at $26.11, while Oxford Industries was up 1.25 percent at $72.63.