Hanesbrand: Zacks’ Bull of the Day Play

I’ll admit it. I have a problem. It’s not something I can easily shake off either. It’s deeply embedded in my psyche and a result of countless childhood experiences that have cemented themselves in my mind. It’s a problem a lot of us who grew up in the Chicagoland area. I love all things Ditka, Harry Carrey, and Michael Jordan. Especially the Michael Jordan part. I wear something Jordan related every day. Who knew the man that brought six Larry O’Brien trophies to Chicago would be instrumental in my shopping decisions nearly two decades later.

Jordan is the spokesman for our Bull of the Day, Hanesbrands (HBIAnalyst Report). The Hanes portfolio extends well beyond just white tees and underwear. Hanes has a strong portfolio of great brands around the world including Champion, Playtex, and Leggs. Their brands represent five of the top twenty apparel brands. The Winston-Salem, N.C. based company is a global consumer goods company with over a century of history.

It’s easy to see why this stock has done so well and why analysts have held a broad bullish stance. Net sales have a CAGR of 8%, Operating Profit 17%, and Diluted EPS 28%, since 2009. All the while gross margins have remained remarkably consistent near 35%. During Q2 2014, HBI grew its operating profit by $50 million over the last year. Slightly more than half of the increase was due to continued profitability improvement in its core business. The main drivers of this were its “Innovate-to-Elevate strategy and efficiency gains from its self-owned global supply chain.
Most of the remainder of the gains was from the contribution of Maidenform. Through Q2, Maidenform contributed $25 million to operating profit. For the full year, Hanesbrands looks for the Maidenform brand to contribute a total of $35 to $40 to profit.

Over the last sixty days, six analysts have raised their earnings estimates for the current quarter, next quarter, and the current year. These bullish revisions have pushed consensus up from $5.01 to $5.61 for the current year. This is a major factor behind the Zacks Rank #1 (Strong Buy). HBI has also benefited from being in a strong industry that’s ranked in the Top 16% of our Zacks Industry Rank.

The technical picture is about as strong as I’ve ever seen. The chart basically goes straight up from the bottom left of the screen to the top right with very little in the way of pullbacks are major dips since late 2012. Save for a few nights ahead of earnings and such, HBI has been up, up, and away.

Since powering above its 40-day moving average in April 2014, HBI has been a very consistent performer. The huge gap up in late June pushed the stock up through the $87.50 level all the way into the mid-$90s. Price action since then has been a bit slower and choppy, but every support level has held for HBI.

The latest support is near the $105 mark. Monday saw HBI close the session at $111.41, breaking through another resistance level at the end of last week. Investors looking to add a little HBI exposure can put their stops just shy of $105 and still have plenty of upside.

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