Hanesbrands Stock Has ‘L’eggs’
Like famed investor Peter Lynch’s wife, Carolyn, I first discovered Hanesbrands Inc. (HBI) in the 1970s, when my local Kroger store began selling L’eggs hosiery. I’m sure you remember; the marketing was genius! The company’s packaging was shaped like an egg, so it was immediately noticeable.
Peter Lynch, who founded Fidelity’s Magellan Fund in 1977 and managed it until 1990 (earning a 29.2% annual return during those years), made the brand even more famous when he included it in his book, One Up on Wall Street: How to Use What You Already Know to Make Money in the Market. He regaled his readers with the story of his wife discovering the ‘egg’ and raving about the product so much, that it prompted him to investigate the stock. And ultimately, it became one of his ‘ten-baggers’.
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Lynch’s investing style was simple: he advocated using common sense and investing in things you see every day and understand. Hanesbrand (back then, it was just Hanes), was a perfect example.
And today, it continues to be an interesting company. Through mergers and internal growth, Hanesbrands now owns an amazing number of brands that you and I use daily. They include:
Hanes, Champion, Playtex, Bali, L’eggs, Just My Size, Hanes Hosiery, Barely There, Wonderbra, Duofold, Airé, Beefy-T, C9 by Champion, Cacharel, Celebrity, Daisyfresh, J. E. Morgan, One Hanes Places, Maidenform, Rinbros, Ritmo, Sheer Energy, Silk Reflections, Sol, Sol y Oro, Tagless and Zorba.
Reasons to Like HBI Stock
“Hanesbrands Inc. is a leading marketer of everyday basic innerwear and activewear apparel. It has a number of well-known brands such as Hanes and Champion. The company sells its products in the U.S., Europe, Australia, and Asia. Hanesbrands is currently facing a turnaround.
“Hanesbrands reported (11/1/18) its financial results for the third quarter of fiscal 2018. Organic revenue increased by 1% for the quarter, due to 7% growth in activewear and 11% growth in the international markets.
“The strongest growth catalyst for Hanesbrands is e-commerce. Hanesbrands’ turnaround still needs time, but we maintain expectations of 3% earnings growth per year over the next five years. Based on expected earnings-per-share of $1.72 in 2018, Hanesbrands stock trades for a price-to-earnings ratio of 8.0. This is significantly below our fair value estimate, which is a price-to-earnings ratio of 13.0, equal to the 10-year average valuation. If Hanesbrands stock trades up to fair value, annual returns would be increased by 10.2% per year if mean reversion occurred over a five-year period.
“In addition, we expect 3% annual earnings growth, and the stock has a current dividend yield of more than 4%. Overall, we expect total returns to reach 17.5% per year over the next five years for Hanesbrands.”
Additionally, the stock was just recommended by Motley Fool, who cited the company’s best quarterly performance in the past four years, primarily due to the growth in its Champion brand, which saw sales rise more than 50% in the fourth quarter (from the year before).
A big marketing push, a turnaround, and an undervalued stock—maybe it’s time to emulate Peter Lynch once more.
Nancy Zambell, Editor of Wall Street’s Best Investments, has spent 30 years helping investors navigate the minefields of the financial industry. Nancy scours more than 200 advisories and research reports to select the top recommendations, which she collects for you in this easy-to-read digest.Learn More