No doubt you’ve heard of (and probably worn) Hanesbrands (HBI) products, observes senior research analyst Daniel Creechin in Frank Curzio's advisory service, The Dollar Stock Club.
The company is famous for its underwear and related clothing and shows the power of a brand name. Its commercials feature the catchy slogan, “Wait till we get our Hanes on you”… and it’s even had Michael Jordan as a spokesman for the past 30 years!
Today, Hanesbrands dominates the underwear industry. It’s No. 1 in market share for innerwear (the category that includes men’s and women’s underwear) in the U.S., Canada, and Australia — and generates an additional $2 billion in annual sales from Europe and Asia.
But this global juggernaut isn’t just a steady, cash generating business. It also comes with a healthy growth profile.
Hanesbrands’ growth comes mainly from its activewear business and its Champion brand. Champion is the leading brand in men’s sweats. And revenue from this business has averaged 18% annual growth over the past three years. That’s a huge growth rate for the relatively slow-growing clothing industry.
Meanwhile, many retailers are facing pressure from higher material costs and supply chain issues, but this is where Hanesbrands has a competitive advantage…
2) Supply chain woes for everyone
Inflation is hitting consumers and businesses hard in 2021. You’ve surely noticed the rising prices for everything from housing and automobiles to furniture and smartphones. There are multiple factors adding to the inflationary pressures. For example, demand is outpacing supply for critical components like semiconductors.
And as you’ve probably heard, supply chains are stressed, which is causing delays around the globe.
Right now, there are more than 80 container ships anchored off the Ports of Los Angeles and Long Beach, California… waiting to be unloaded. To give you an idea of how bad the situation is… there are more containers sitting offshore than the Port of Long Beach handled during the entire month of August!
These supply chain woes are trouble for everyone. But it’s worth noting that Hanesbrands owns its supply chain. In other words, it owns all of the factories where its products are made… and it has control over its manufacturing process from beginning to end (it doesn’t rely on third parties for making its products).
The company isn’t completely immune to the current supply chain problems (it doesn’t own ships or control what happens at U.S. ports). But controlling its manufacturing supply chain gives Hanesbrands long-term visibility and helps management stay proactive in managing costs and material supplies.
It’s also worth noting that Hanesbrands has been employing ESG practices for years. The ESG (environmental, social, and governance) movement continues to gain momentum across the investment industry, as major asset managers push companies to be more conscious about their impact on the world.
Again, the current inflationary environment is tough on everyone, but it creates an opportunity for the best companies (like Hanesbrands) to stand out… and its ESG policies will help the company gain more attention from investors.
3) New leadership is spurring new growth
CEO Stephen Bratspies took the reins in August 2020. Bratspies is a former executive from Walmart, where he held several leadership positions and had a long track record of success.
Just over a year into the job, Hanesbrands is posting strong results under his leadership…
Two months ago, Hanesbrands reported its second quarter (Q2) results. Sales growth was solid at 13.5%… But because of the coronavirus and economic lockdowns, it was easy for most companies to beat the ugly numbers from 2020. That’s why we need to check how the business is doing vs. pre-COVID results. Compared to Q2 of 2019, Hanesbrands’ sales grew by 15%, while operating profits increased 14%. Those are solid growth numbers that show the business is in a long-term uptrend.
Management raised guidance for the upcoming Q3 and for full-year 2021 results. The company expects to grow sales about 13% vs. 2019 (sales from pre-COVID times). Again, this double-digit growth is what we want to see.
Hanesbrands will continue to focus on managing costs and generating free cash flow (FCF). FCF is a critical number for investors. It’s the cash that’s left over after a company pays all its bills and reinvests in the business for future growth. The company generated over $1.3 billion in FCF in the last 12 months. That’s an increase of over 100% from 2019. In other words, annual FCF has more than doubled since 2019. That’s a massive positive sign for investors.
The firm has a strong balance sheet and no debt to worry about. And its solid financial position allows the company to pay a dividend yield of over 3.5%. That’s over 150% higher than the overall market (the current S&P 500 dividend yield is just 1.3%).
Overall, as inflation continues to move higher, the best businesses will shine. Hanesbrands has multiple strong brands, controls its supply chain and manufacturing, and has a new CEO committed to growing sales and cash flow.
It’s a dominant company that can easily pass along rising costs and outperform its peers in the current inflationary environment. Buy Hanesbrands up to $17.25. Use a 25% hard stop from your cost basis.
