Hanesbrands Alleviates Some Concerns by Reaching Modest Q4 Expectations; Shares Very Undervalued

Providing some relief to beleaguered shareholders, Hanesbrands announced that its fourth-quarter net sales came in slightly above the top end of its $1.4 billion-$1.45 billion guidance (issued in November) and that its adjusted operating income was in the middle of its $70 million-$100 million anticipated range. For some perspective, 2021’s fourth-quarter numbers were considerably higher at $1.75 billion and $220 million, respectively. Even so, meeting even low guidance must be seen as a mild positive (shares edged up about 9% in Jan. 12 postmarket trading) given the concerns about Hanes’ weak cash flow, tough market conditions, elevated inventories, and the roughly $1.4 billion in debt maturities looming in spring 2024. The firm will report its full 2022 results on Feb. 2. In the meantime, neither our forecast nor our $22 fair value estimate is materially affected by the announcement, and we view Hanes as significantly undervalued. While the company is coming off a tough year, we believe it is making progress on its cost containment, inventory management, and product initiatives under its Full Potential plan. Moreover, we believe it will refinance its debt while continuing to pay its sizable dividend (current high-single-digit yield). Our narrow moat rating, based on the strength of Hanes’ key brands, holds.