On Friday, Stifel, a financial services firm, raised its price target on Hanesbrands (NYSE:HBI) shares to $8.00 from the previous $6.00, while keeping a Hold rating on the stock. The adjustment follows Hanesbrands' third-quarter revenue surpassing estimates for the first time since the first quarter of 2023, contributing to earnings per share (EPS) that exceeded expectations. The company reported an adjusted EPS of $0.15, higher than the anticipated $0.12 by Wall Street and the $0.11 Stifel estimate.
Hanesbrands has also provided its fiscal year 2024 guidance, projecting revenues to center around $3.61 billion, within the prior range of $3.59 to $3.63 billion. Additionally, the company's adjusted EPS outlook has improved, with a new forecast of $0.39 topping the previous range of $0.31 to $0.37. The company's strategy for value creation is dependent on consistent top-line growth, adjusted EBIT margin expansion from the current approximate 12% to a target of over 15%, cash generation, and a reduction in interest expenses.
The sale of the Champion brand and a debt repayment made in October have reduced Hanesbrands' net debt to $2.0 billion, equating to a net debt to EBITDA ratio of 4.1 times. The company has plans to reach a sub-3x net leverage range by 2026, supported by improvements in profitability. While margin visibility is considered strong through 2025, forecasting top-line growth remains historically challenging.
Hanesbrands' shares are currently trading at a discount, reflecting a 10% free cash flow (FCF) yield based on the projected FCF of approximately $300 million for fiscal year 2025. Stifel's maintained Hold rating and new $8 price target correspond to an estimated 9.3 times enterprise value to fiscal year 2025 EBITDA ratio. Despite the positive adjustments in Hanesbrands' financial outlook, the firm cites challenges in top-line visibility as a reason for remaining valuation sensitive.
In other recent news, Hanesbrands Inc. reported a modest decrease in third-quarter net sales, falling 2.5% year-over-year to $937 million. This decline was attributed to the divestiture of its hosiery business and foreign exchange headwinds. Despite this, Hanesbrands exceeded its profitability guidance, achieving a gross margin of 41.8% and an operating margin of 13%. The company also highlighted its success in debt reduction, having paid down $870 million in October with a year-end target of $1 billion.
CEO Steve Bratspies underscored the company's strategic focus on innovation and brand investment, which has led to an increased guidance for the fourth quarter and full-year earnings. For the fourth quarter, net sales are expected to reach around $900 million, a 3% increase year-over-year, and operating profit is projected at approximately $115 million, marking a 17% increase. The full-year cash flow guidance has also been revised upwards to about $250 million.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Hanesbrands' financial position and market performance. The company's market capitalization stands at $2.83 billion, reflecting investor sentiment following the recent positive earnings report and improved guidance.
InvestingPro Tips highlight that Hanesbrands has shown a significant return over the last week, with a 1-week price total return of 18.19%. This aligns with the market's positive reaction to the company's Q3 results and upgraded fiscal year 2024 outlook. Additionally, the stock has demonstrated strong performance over longer periods, with a 6-month price total return of 87.89% and a 1-year return of 98.58%.
Despite these gains, InvestingPro Tips caution that the RSI suggests the stock may be in overbought territory, which investors should consider when evaluating entry points. It's also noted that analysts anticipate a sales decline in the current year, which may impact the company's efforts to achieve consistent top-line growth as outlined in their value creation strategy.
For readers interested in a deeper analysis, InvestingPro offers 13 additional tips for Hanesbrands, providing a comprehensive view of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.