TD Securities Upgrades Gildan, Says Strategic Transformation Is Underway

Gildan Activewear Inc (USA) (NYSE: GIL) may have missed first-quarter earnings estimates Wednesday, but shares are moving considerably higher after a new analyst report projects greater visibility on the apparel company's growth.

The Analyst

TD Securities analyst Brian Morrison upgraded Gildan from Hold to Buy and raised the price target from $33 to $35.

The Thesis

Even though Q1 results came in slightly below consensus estimates, Morrison said he found comfort in Gildan’s strategic transformation toward an industry-leading cost structure with above-average quality product. (See the analyst's track record here.) 

“This, in our view, positions the company well to increase its market share both online and in the fashion basics segment,” Morrison said.

Gildan reported modest year-over-year activewear growth of 3.2 percent at higher net selling prices in Q1, but the company said the segment would have increased 15 percent year-over-year if it was not weighed down by production disruptions stemming from the Honduran election.  

E-commerce continues to be a strong point for the company: Gildan launched a full line of men’s underwear on Amazon.com, Inc. (NASDAQ: AMZN) in January, and it's now one of Amazon’s top-selling brands in the category.

The Canadian company purchased struggling American Apparel in 2017  and announced last week that it expanded the brand's direct-to-consumer platform to over 200 countries.

International growth was also a bright spot for Gildan, with the company reporting a 24-percent gain.

Until the company's strategic transformation fully takes hold, Morrison said he expects production inefficiencies and elevated costs to continue into the second quarter. TD Securities projects this will reverse in the second half of 2018, leading to an attractive re-acceleration in Gildan's EPS and free cash flow growth profile.

Price Action

Gildan shares were up 4.47 percent at $30.17 at the time of publication Thursday afternon. 

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Photo courtesy of Gildan.