Disclaimer: I am not a financial advisor. The information below is my opinion only. This is not advice and is for educational purposes only.
Is Hanesbrands a good stock to buy?
Ticker: HBI
Today I wanted to write about Hanesbrands and take notice of the attractive factors the company has, as well as some potential cautionary points.
Summary
Hanesbrands is one of the most recognizable brands in the world.
From their iconic “tagless” T-shirts to the socks on your feet, the truth is most of us have worn a Hanes product at some point in our life.
According to their annual report, they are a housing company of multiple brands. These include names such as Hanes, Champion, Bras N Things, Playtex and Comfortwash. They are a global leader in the innerwear and activewear categories.
One fact that some people might not have guessed is that the Hanes brand is the number one selling apparel brand in the United States. This brand is found in 9 out of 10 households according to their website reports.
This is an incredible detail to know as a value investor. One question I like to ask when buying a stock is: why do you have to sell something to me?
If I was a customer, what would make me buy a Hanesbrands product? One reason might be that they are the producers of apparel that we all wear every day. It is safe to assume that their underwear and sock categories will not be going away any time soon.
Another import aspect of their products is that they are cheap. Again, according to their annual report, Hanesbrands manufactures most of their products straight from their own facilities. This in turn allows them to cut down on costs. Hanesbrands mentions that 65% of the units sold were from finished goods manufactured through a combination of facilities they own and operate.
Check the numbers
In the end, looking at the economics of a business is a great way to decide whether to invest or not. Hanesbrands is a great business because they have a recognizable brand and they make products that each of us will use going forward.
Obviously, there are other competitors that make similar products. Fruit of the Loom is another successful company that produces alike apparel. However, there are not too many brands that produce mass innerwear apparel at the low cost that these two do.
Let’s look at some quantitative facts that make this business attractive and a potential stock to buy. Remember you can always check out a list of questions to ask before buying any stock here.
- Hanesbrands had roughly 550 million dollars of annual free cash flow (owners earnings) as of January 1st, 2022.
Comparing that to their revenue of nearly 7 billion dollars, Hanes is managing to keep a nice margin of cash while also reinvesting into the business.
- Net margins for the business tend to fall between 5-10 percent.
Last year Hanes had about 6 percent net margin. Although this is not at the top of the industry, this is consistent historically.
- Return on invested capital has been around 10% for the last decade
This factor is important to notice because it signifies what Hanes is getting for the money they put back into the business. Most importantly, having a positive ROIC is always a good sign that a business is running efficiently.
- Hanesbrands has a rewarding dividend with a current yield above 5%.
Dividend yield is a ratio between the payout amount per share and the current stock price. These days anything near or above 5% is a great distribution. For example, if I had $10,000 invested, I would make about $135 every quarter at the current payout of 0.15 cents a share.
What to watch
One potential number that could scare away investors is the debt outstanding.
Hanesbrands has over 3 billion dollars in long term debt. This is more than 3 times their equity which could be an issue. Debt is always a factor to consider when looking at what stocks to buy. However, with consistent cash flow, the company feels they can manage their long-term obligations.
Overall, Hanesbrands is a solid investment. Given the fundamentals listed above and the economics of the business, this should be a potential stock to own in any portfolio.
With consistent revenue growth and investing in new brands like their Champion brand, I would say that Hanes is headed in the right direction. Obviously, there is always a chance for something to go wrong with any company. Yet, this pick can be a good asymmetrical risk to take as the good factors outweigh the bad.
If you think about the company from a competitive advantage standpoint, it’s true that the Hanes brand itself is an example of this.
As the number one selling apparel brand in the United States, Hanes owns a market share that would be tough to steal. Their number one selling customer is Walmart, which along with the lower prices Hanes can be known for, greatly helps with overall sales.
Additionally, if we think about the intrinsic value of this company, there is even more to like. Hanes has consistent cash flows hovering around 500 million dollars.
Further, they also have a decent balance sheet with positive equity and capital expenditures that are not extreme. This, along with the ability to grow the Champion brand, could put the company on a road to success.
I put the intrinsic value between 8-10 billion dollars.
Not to mention, the current dividend will greatly add to the return of investment. This factor, along with the economics in the business and the intrinsic value, make Hanesbrands an attractive stock worth looking into.
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