Bangladesh And Central America Facilities Will Advance Manufacturing Efficiency

Key Takeaways

• Gildan's innovation in product offerings and manufacturing expansion is driving market share gains and improving net margins.
  
• Focus on sustainability and robust cash flow, coupled with share buybacks, enhances shareholder value and earnings growth.
  
• Tariff pressures, weak international markets, and declining hosiery sales threaten Gildan's costs, revenue growth, and earnings, while increased tax rates could further impact net earnings.

Catalysts

Manufactures and sells various apparel products.

• Gildan's commitment to innovation is enhancing the competitive advantage of its product offerings, particularly with new technologies like soft cotton, plasma print, and Color blast. This is expected to drive market share gains and lead to revenue growth through increased sales volumes and favorable product mix.
  
• The ramp-up of Gildan’s new manufacturing complex in Bangladesh presents a significant opportunity for cost reduction and increased production capacity. This should positively impact net margins by leveraging low-cost manufacturing capabilities and the strategic integration of U.S. cotton and yarn content to mitigate tariff effects.
  
• The company plans to expand its capacity in Central America, taking advantage of shifting market dynamics such as nearshoring trends and changes in the competitive landscape. This expansion could help Gildan capitalize on increased demand from U.S.-based customers, boosting both revenue and operating margins.
  
• Gildan's emphasis on sustainability and ESG initiatives is not only strengthening its brand reputation but also providing operational efficiencies that can enhance earnings. Recognition in sustainability indexes and leadership acknowledgments present opportunities for attracting more environmentally-conscious consumers and investors.
  
• Robust cash flow generation is anticipated to exceed $450 million, and ongoing share repurchase programs are expected to enhance shareholder value and EPS. This focus on cash flow and buybacks is likely to sustain attractive earnings growth despite a challenging macroeconomic environment.

Gildan Activewear Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gildan Activewear's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $571.2 million (and earnings per share of $4.14) by about May 2028, up from $400.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $494.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, down from 16.2x today. This future PE is lower than the current PE for the US Luxury industry at 16.2x.
• 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 7.73%, as per the Simply Wall St company report.

Gildan Activewear Future Earnings Per Share Growth

Risks

• The impact of the recent tariff announcement remains uncertain, and while Gildan has some flexibility due to its U.S. cotton content, continued tariff pressures could affect overall costs and potentially hit net margins.
  
• Weakness in international markets, especially Asia and Latin America, and a decrease in sales in these regions may hinder revenue growth, despite strong performance in Europe.
  
• Significant declines in hosiery and underwear sales could persist, especially with the phaseout of the Under Armour business, impacting overall revenue and possibly leading to lower earnings.
  
• Cash flow used in operating activities significantly increased to $142 million from $27 million in the prior year, indicating challenges in managing working capital which could impact free cash flow if trends continue.
  
• A higher effective tax rate compared to last year (15% vs. 3.6%) due to changes in global minimum tax rates could negatively affect net earnings if tax burdens increase in the future.

Valuation

• The analysts have a consensus price target of CA$77.742 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$86.42, and the most bearish reporting a price target of just CA$70.36.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $571.2 million, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of CA$59.31, the analyst price target of CA$77.74 is 23.7% 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.