Gildan Activewear Inc. Keep Your Shirt On

GIL : NYSE : US$48.87
BUY 
Target: US$53.00

COMPANY DESCRIPTION:
Gildan is one of North America’s premier vertically integrated apparel manufacturers, focusing on frequent
replenishment items with relatively low fashion risk. The company sells to the wholesale market, along with directly to retail.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Consumer Products
EXPECTING AN UPDATE ON CAPACITY EXPANSION
Investment recommendation
We are reiterating our BUY rating and increasing our target price to US$53.00 (from US$52.00) in advance of Gildan’s Q4/F13 earnings results.
Investment highlights
 Gildan is scheduled to report its Q4/F13 earnings results on Thursday, November 21, before market open. A conference call will be held the same day at 8:30 am EST. The dial-in number is 1-800-447-0521. For the quarter we are forecasting revenue of $575 million, up 2% YoY. Our EPS estimate of $0.85 is above last year at $0.78 and near the top end of management’s guidance.
 We believe the focus of the earnings release will center around Gildan’s division. Given that Gildan maintains a debt-free balance sheet, in our view, the company is well positioned to either build new manufacturing facilities, or pursue accretive acquisitions. Should Gildan elect to build a new facility, we believe minimum capacity would be 20 million dozens, which we estimate implies roughly $0.60 in incremental EPS.
 We are introducing our F2015 EPS estimate of $3.47, but note this does not include any incremental capacity, as we await further clarity.
Therefore, we believe there is substantial upside to this estimate.
Valuation
Our US$53.00 target price represents 16.8x our F2014 EPS estimate of $3.16. In our view, Gildan is well positioned to grow both its Branded and Printwear divisions over the course of our forecast period, and we believe the shares are attractively valued at current levels