Inside the Market’s roundup of some of today’s key analyst actions
) current valuation does not accurately reflect its “recently improved profitability and resulting strong return on invested capital of 22 per cent,” according to Stifel analyst Martin Landry.
“Gildan has improved its profitability in recent years with its ‘Back-to-Basics’ initiative, reducing SG&A expenses by more than $100 million,” said Mr. Landry. “The company’s operating profit margin has risen to 20 per cent, the highest levels in more than 10 years. This translated into a strong ROIC of 22 per cent, 870 basis points above peer average. We expect these strong returns on invested capital to continue. Gildan’s financial leverage stands at 1.
However, he sees its valuation “contraction” providing an “appealing entry point” for investors, setting a target of US$38 per share. The current average is US$37.10. “As FCA executes its disposition strategy, we expect significant cash proceeds to be realized,” said Mr. Chrystal. “In the near-term, we expect proceeds to be allocated to debt reduction. Use of net proceeds from future asset sales is somewhat less certain, given potential outcomes of the strategic review.
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