Hanesbrands: Activist Campaign Ends With Strong Board Additions; Shares Very Undervalued

Narrow-moat Hanesbrands announced that it has reached a standstill agreement with activist shareholder Barington Capital that will make Barington an advisor to the company and bring three new members to its board. In August, Barington sent an open letter to Hanes’ chairman calling for cost cuts, inventory reduction, and faster gross margin recovery to generate cash and pay down debt. We think these were reasonable suggestions given Hanes’ heavy debt and weak stock performance. Barington’s letter also suggested that Hanes needed new board members and, possibly, a new CEO, but the company has since announced some strategic moves, including the possible sale of Champion, that Barington apparently supports. We think a co-operation agreement between Hanes and Barington is a positive step for shareholders and are holding our Standard Capital Allocation Rating and our $18.80 fair value estimate. We think Hanes is very undervalued and will achieve significant debt reduction and improve free cash flow over the next few years.