Why is HanesBrands Stock so Cheap?

Basic underwear is suddenly exciting thanks to this stock at a 70% discount.

Andrew Willis 19 January, 2024 | 4:25AM
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Interested in other cheap stocks? Check out our recent episode on BlackBerry stock

Key Takeaways for HanesBrands Stock:

  • Market conditions aren’t great for underwear but true to the category’s name, replenishment products should again see demand when consumers need to replace clothing items.
  • Hanes HBI has managed to carve out a narrow competitive moat with its intangible brand asset, evidenced by a 60% share of the sales in the category, in multiple countries.
  • HanesBrands has invested in premium positioning with its acquisition of Champion, for example, but the most growth may come from improving the efficiency of its leading innerwear business.

 

Andrew Willis: How do you build a competitive moat with basic underwear? That’s a question HanesBrands stock investors face as their clothing, considered “replenishment products” face off against fancier private label offerings.

Investors may be selling as competition heats up, but senior analyst David Swartz reminds investors that while the threat of private-label apparel is often cited as a risk to HanesBrands, this is nothing new and should not affect the company's ability to compete.

Will Hanes Remain the Underwear King?

To bring growth back to the company, HanesBrands bought Champion and introduced premium products like ‘X-temp’ underwear  – but there are also challenges from inflation and slowing apparel demand which may affect these products. Instead, it may be back to basics at Hanes with their leading position in innerwear, work on improving supply chain efficiency… and people eventually needing to replenish their sock drawers.

For Morningstar, I’m Andrew Willis.

bulls HanesBrands Bulls Say

  • Hanes’ Champion is a contender in the hot but crowded athleisure space. The brand is already well known in North America and parts of Europe, and there is significant potential in China and other underpenetrated markets.
  • Hanesbrands has successfully introduced brand extensions that have allowed it to expand shelf space and increase price points in the typically staid category of basic apparel.
  • Hanes has attracted some interest from an activist shareholder. We think there could be an opportunity to create value through more aggressive cost-cutting and other changes.

bears HanesBrands Bears Say

  • Hanes has lost market share in the highly competitive women’s intimates category, where it has outsize exposure to struggling U.S. department stores.
  • Champion has recently been underperforming some peer activewear brands. There is no guarantee that Hanes’ plans for the brand will be successful.
  • Hanes sells significant amounts of basic clothing at relatively low prices. It could be difficult for the firm to pass along any input cost increases to consumers through higher prices. Also, consumers may reduce their total spending on apparel on economic concerns.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Hanesbrands Inc4.58 USD0.88Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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