Morningstar - Q4 2021 - 65
A Rare Bargain
Hanesbrands stands to benefit from trends shaping
the activewear industry.
David Swartz
BEST IDEAS: EQUITY
This article is adapted from a Morningstar equity research report dated
Sept. 28, 2021.
Demand for activewear is high as the world emerges from the pandemic.
We have identified several changes in consumption and production that we
expect will shape the industry for years to come, including increased
casualization in fashion, the acceleration of the shift to e-commerce, and
greater interest in connected fitness. While bargains are hard to find, there are
two undervalued narrow-moat producers: One is Anta Sports Products
02020:HK, the third-largest athletic apparel and footwear manufacturer in
its home country of China, and the other is Hanesbrands HBI.
Narrow-moat Hanesbrands owns Champion, Hanes, and other brands.
Hanesbrands is the market leader in basic innerwear (69% of its 2020
sales) in multiple countries. We believe its key innerwear brands like Hanes
and Bonds (in Australia) achieve premium pricing. While the COVID-19
crisis adversely affected 2020 results, we think Hanes' share leadership in
replenishment apparel categories puts it in better shape than some
competitors.
In May, the firm unveiled its plan to expand Champion, bring growth back
to innerwear, improve connections to consumers (through greater marketing
and enhanced e-commerce, for example), and streamline its portfolio.
As part of its growth plan, Hanes intends to build on Champion's popularity in
North America, Asia, and Europe. Although COVID-19 and the discontinuation
of the C9 label at Target hurt sales in 2020, we believe Champion will
continue its growth path in 2021 as it and other activewear apparel are
increasingly worn as lifestyle/fashion brands. Moreover, Hanes recently found
a new home for C9 as an exclusive brand for wide-moat Amazon.com
AMZN. Hanes' management forecasts that Champion will reach $3 billion
in global sales in 2024, up from about $2 billion this year, which we
think is achievable.
Another key strategy for Hanes is to improve the efficiency of its supply chain.
It has already made progress in this area, having achieved a 15% increase
in manufacturing output over the past three years. Hanes, unlike many
rivals, primarily operates its own manufacturing facilities. More than 70% of
the more than 2 billion apparel units sold by the company each year are
manufactured in its own plants or those of dedicated contractors. We believe
Hanesbrands HBI
Stats 09/30/2021
Morningstar Rating
QQQQQ
Price
$17.16
Economic Moat
Narrow
Price/Fair Value 09/30/2021
$30
Fair Value Estimate Per Share
26.00
17.16
10/2018
Month-End Closing Price
10/2019
10
20
10/2020
Sector
t Consumer Cyclical
Fair Value Estimate
$26.00
Capital Allocation
Standard
Industry
Apparel Manufacturing
Uncertainty
Medium
Market Cap
$5.99 Billion
the combination of strong pricing and production efficiencies allows
Hanes to maintain operating margins above 20% for its American innerwear
business despite somewhat inconsistent sales.
Our narrow moat rating is due to the strength of Hanesbrands' intangible
brand asset. Hanes' key apparel brands have leading market share in
their categories in the U.S. and a few other countries. The popularity of its
brands allows it to maintain strong retail distribution and premium
pricing. We believe the company can generate returns on invested capital
above its weighted average cost of capital over the next 10 years.
Hanesbrands trades at a significant discount to our fair value estimate of
$26 per share. While Hanesbrands' debt has been a concern ($4 billion
at the end of 2020), we forecast significant reduction over the next few years,
even while it continues to pay dividends. K
David Swartz is an equity analyst with Morningstar Research Services LLC.
morningstar.com/lp/magazine
65
https://www.morningstar.com/authors/2243/david-swartz
https://www.morningstar.com/stocks/pinx/anpdy/quote
https://www.morningstar.com/stocks/pinx/anpdy/quote
https://www.morningstar.com/stocks/xnys/hbi/quote
https://www.morningstar.com/stocks/xnas/amzn/quote
http://www.Amazon.com
https://www.morningstar.com/stocks/xnas/amzn/quote
https://www.morningstar.com/authors/2243/david-swartz
http://www.morningstar.com/lp/magazine
Morningstar - Q4 2021
Table of Contents for the Digital Edition of Morningstar - Q4 2021
Contents
Morningstar - Q4 2021 - Cover1
Morningstar - Q4 2021 - Cover2
Morningstar - Q4 2021 - 1
Morningstar - Q4 2021 - 2
Morningstar - Q4 2021 - Contents
Morningstar - Q4 2021 - 4
Morningstar - Q4 2021 - 5
Morningstar - Q4 2021 - 6
Morningstar - Q4 2021 - 7
Morningstar - Q4 2021 - 8
Morningstar - Q4 2021 - 9
Morningstar - Q4 2021 - 10
Morningstar - Q4 2021 - 11
Morningstar - Q4 2021 - 12
Morningstar - Q4 2021 - 13
Morningstar - Q4 2021 - 14
Morningstar - Q4 2021 - 15
Morningstar - Q4 2021 - 16
Morningstar - Q4 2021 - 17
Morningstar - Q4 2021 - 18
Morningstar - Q4 2021 - 19
Morningstar - Q4 2021 - 20
Morningstar - Q4 2021 - 21
Morningstar - Q4 2021 - 22
Morningstar - Q4 2021 - 23
Morningstar - Q4 2021 - 24
Morningstar - Q4 2021 - 25
Morningstar - Q4 2021 - 26
Morningstar - Q4 2021 - 27
Morningstar - Q4 2021 - 28
Morningstar - Q4 2021 - 29
Morningstar - Q4 2021 - 30
Morningstar - Q4 2021 - 31
Morningstar - Q4 2021 - 32
Morningstar - Q4 2021 - 33
Morningstar - Q4 2021 - 34
Morningstar - Q4 2021 - 35
Morningstar - Q4 2021 - 36
Morningstar - Q4 2021 - 37
Morningstar - Q4 2021 - 38
Morningstar - Q4 2021 - 39
Morningstar - Q4 2021 - 40
Morningstar - Q4 2021 - 41
Morningstar - Q4 2021 - 42
Morningstar - Q4 2021 - 43
Morningstar - Q4 2021 - 44
Morningstar - Q4 2021 - 45
Morningstar - Q4 2021 - 46
Morningstar - Q4 2021 - 47
Morningstar - Q4 2021 - 48
Morningstar - Q4 2021 - 49
Morningstar - Q4 2021 - 50
Morningstar - Q4 2021 - 51
Morningstar - Q4 2021 - 52
Morningstar - Q4 2021 - 53
Morningstar - Q4 2021 - 54
Morningstar - Q4 2021 - 55
Morningstar - Q4 2021 - 56
Morningstar - Q4 2021 - 57
Morningstar - Q4 2021 - 58
Morningstar - Q4 2021 - 59
Morningstar - Q4 2021 - 60
Morningstar - Q4 2021 - 61
Morningstar - Q4 2021 - 62
Morningstar - Q4 2021 - 63
Morningstar - Q4 2021 - 64
Morningstar - Q4 2021 - 65
Morningstar - Q4 2021 - 66
Morningstar - Q4 2021 - 67
Morningstar - Q4 2021 - 68
Morningstar - Q4 2021 - 69
Morningstar - Q4 2021 - 70
Morningstar - Q4 2021 - 71
Morningstar - Q4 2021 - 72
Morningstar - Q4 2021 - 73
Morningstar - Q4 2021 - 74
Morningstar - Q4 2021 - 75
Morningstar - Q4 2021 - 76
Morningstar - Q4 2021 - 77
Morningstar - Q4 2021 - 78
Morningstar - Q4 2021 - 79
Morningstar - Q4 2021 - 80
Morningstar - Q4 2021 - 81
Morningstar - Q4 2021 - 82
Morningstar - Q4 2021 - 83
Morningstar - Q4 2021 - 84
Morningstar - Q4 2021 - 85
Morningstar - Q4 2021 - 86
Morningstar - Q4 2021 - 87
Morningstar - Q4 2021 - 88
Morningstar - Q4 2021 - 89
Morningstar - Q4 2021 - 90
Morningstar - Q4 2021 - 91
Morningstar - Q4 2021 - 92
Morningstar - Q4 2021 - 93
Morningstar - Q4 2021 - 94
Morningstar - Q4 2021 - 95
Morningstar - Q4 2021 - 96
Morningstar - Q4 2021 - Cover3
Morningstar - Q4 2021 - Cover4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2024q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2024q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2024q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019winter
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019fall
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019summer
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019spring
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20191201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20141011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20141201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20091011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008catalog
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008winter
https://www.nxtbookmedia.com