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On Wednesday, Scotiabank (TSX:BNS) analyst John Zamparo reinstated coverage on Gildan Activewear (TSX:GIL), which trades on the New York Stock Exchange under the ticker (NYSE:GIL), assigning a Sector Outperform rating and setting a price target of $55.00. The move comes as Gildan’s business model continues to demonstrate high margins, return on invested capital (ROIC) of 18%, and strong free cash flow conversion, amidst a backdrop of weakened competition. According to InvestingPro data, the company maintains healthy profitability with a 30.9% gross margin and has consistently raised its dividend for 4 consecutive years.
Zamparo noted that the conditions facing both the industry and the company have become more challenging this year, following a highly favorable 2024. Despite these headwinds, the analyst believes that Gildan’s low-cost structure and advantageous supply chain, characterized by U.S.-sourced cotton and avoidance of China, will enable the company to capture market share in a year anticipated to show minimal sales growth industry-wide. InvestingPro analysis shows the company maintains a strong financial health score of GOOD, with liquid assets exceeding short-term obligations and a robust current ratio of 3.91x.
The stock has experienced a decline of approximately 12% from its peak value. Zamparo’s analysis suggests that while Gildan may not replicate its impressive performance from the previous year, the company’s shares present an attractive defensive option within the discretionary sector.
Gildan Activewear’s position in the market is further supported by the company’s strategic advantages, which are expected to contribute to its resilience and potential to outperform within its sector. The analyst’s reinstatement of coverage with a positive outlook reflects confidence in Gildan’s ability to navigate the current industry landscape.
In other recent news, Gildan Activewear reported its first-quarter 2025 earnings, revealing a slight miss on earnings per share (EPS) and revenue compared to forecasts. The company posted an EPS of $0.59 against an expected $0.64, and revenue came in at $712 million, below the anticipated $727.24 million. Despite these misses, the company demonstrated a 2.3% year-over-year revenue increase and maintained a strong gross margin of 31.2%. Gildan Activewear also held its annual meeting where all eight director nominees were re-elected, and shareholders passed a non-binding advisory vote on executive compensation. Additionally, the company reappointed its auditors with 88.79% approval. Analysts from TD Cowen and Desjardins discussed the company’s strategic initiatives and market positioning, noting Gildan’s optimism about mid-single-digit revenue growth for 2025. The company plans to leverage its vertically integrated manufacturing operations and new product innovations to drive future growth. Gildan is also focusing on expanding its capacity in Central America, anticipating potential market share gains due to changes in the competitive landscape and tariff dynamics.
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