On Thursday, CFRA announced a downgrade of Gildan Activewear (NYSE:GIL)'s stock from Buy to Hold, maintaining a price target of Cdn$50.00. The shift in rating comes even as the apparel manufacturer posted a normalized Q1 earnings per share (EPS) of $0.59, surpassing consensus estimates by $0.08. This performance occurred on the back of revenues totaling $696 million, which narrowly exceeded expectations by $3 million.
In the first quarter, Gildan Activewear experienced a mixed segment performance. While Activewear sales saw a modest year-over-year increase of 1%, the hosiery and underwear segment faced a 10% decline. This downturn was attributed to the company's exit from the Under Armour (NYSE:UA) sock business and a general weakness in the underwear market.
The company's financial health was further evidenced by an expanded adjusted gross margin, which grew by 410 basis points to 30.3%. This improvement was largely due to reductions in raw material and manufacturing costs. Moreover, Gildan's inventory levels decreased by 13.5% year-over-year to $1.14 billion, a strategic move that is expected to bolster gross margins and the company's bottom line moving forward.
CFRA's price target is based on a 12.2x multiple of their 2024 EPS estimate for Gildan, which is below the company's 10-year average forward P/E multiple of 16.5x but aligns with its 3-year average of 12.1x. The firm's EPS estimates for 2024 and 2025 remain unchanged at Cdn$4.11 (USD$3.00) and Cdn$4.59 (USD$3.35), respectively.
InvestingPro Insights
Recent data from InvestingPro underscores Gildan Activewear's financial prudence and growth potential. The company's market capitalization stands at a robust $5.64 billion, with a trailing P/E ratio of 12.42, indicating a reasonable valuation compared to industry peers. Additionally, Gildan's price to book ratio over the last twelve months as of Q1 2024 is 2.92, reflecting a strong balance sheet.
InvestingPro Tips highlight Gildan's commitment to shareholder value. The company has been actively buying back shares and has increased its dividend for three consecutive years, demonstrating confidence in its financial stability and growth trajectory. Moreover, with a dividend yield of 2.37% as of the latest data, Gildan's commitment to returning value to shareholders is evident. For investors seeking more insights, there are six additional InvestingPro Tips available, which can be accessed with a subscription. Use coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription and explore comprehensive analyses tailored to informed investment decisions.
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