Soft Cotton And Plasma Print Technologies Set To Expand Future Market Share

Key Takeaways

• Gildan's growth strategy focuses on capacity expansion, innovation, and ESG initiatives, driving expected sales and earnings growth through 2025-2027.
  
• Market share gains are driven by innovation launches, new licenses like Champion, and expanding international capacity, particularly in Bangladesh.
  
• Gildan faces challenges from tax changes, geopolitical risks, exchange rate fluctuations, and business shifts, with investments potentially impacting short-term financial metrics.

Catalysts

Manufactures and sells various apparel products.

• Gildan's Sustainable Growth Strategy is focusing on capacity expansion, innovation, and ESG initiatives, which are expected to drive net sales growth in the mid-single-digit range and adjusted EPS growth in the mid-teen range over the 2025-2027 period. (Revenue, Earnings)
  
• The company is actively launching new innovations, including soft cotton technology and plasma print technology, with strong positive reception. The planned expansion of these innovations is anticipated to contribute to market share gains and increase in net sales. (Revenue)
  
• The company is expanding its distribution channels and product lines with the acquisition of licenses like the Champion brand in the Printwear channel, which will allow them to penetrate new markets and potentially increase market share. (Revenue, Earnings)
  
• Gildan is benefiting from a changing competitive landscape, with competitors exiting the market, which is expected to support its market share growth and sustain its revenue base. (Revenue)
  
• The ongoing expansion in international capacity, especially in Bangladesh, is enhancing their ability to service recovering international markets, leading to substantial sales increases, as seen with a 20% sales increase in these areas, which could improve net margins due to scale efficiencies. (Revenue, Net Margins)

Gildan Activewear Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gildan Activewear's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 16.2% in 3 years time.
• Analysts expect earnings to reach $611.8 million (and earnings per share of $4.44) by about March 2028, up from $400.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, down from 17.6x today. This future PE is lower than the current PE for the US Luxury industry at 16.8x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.63%, as per the Simply Wall St company report.

Gildan Activewear Future Earnings Per Share Growth

Risks

• The phase-out of the Under Armour business has impacted sales in both the Hosiery and underwear categories, which could affect future revenue growth.
  
• Gildan faces higher income tax expenses due to the enactment of the Global Minimum Tax in Canada and Barbados, which could impact net margins.
  
• Potential geopolitical uncertainties and unclear repercussions of trade policies create risks that could affect international revenue growth and overall earnings.
  
• Fluctuations in currency exchange rates, particularly affecting international markets like Europe, might impact net revenues and profitability.
  
• Continued investment in technologies and infrastructure, while important for long-term growth, could temporarily increase capital expenditures, affecting short-term net margins and cash flows.

Valuation

• The analysts have a consensus price target of CA$80.652 for Gildan Activewear based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$89.7, and the most bearish reporting a price target of just CA$62.24.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $611.8 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 7.6%.
• Given the current share price of CA$66.3, the analyst price target of CA$80.65 is 17.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.