Adjusted EPS grew 17.6% and sales climbed, but a new acquisition is key to jumpstarting stagnant growth
Key Numbers
- $2.2 billion: Total value of the deal to acquire Hanesbrands.
- $1.00: Adjusted diluted EPS in Q3, up 17.6% year over year.
- 32%: Stock price increase so far this year.
- 13: The stock’s forward price-to-earnings (P/E) multiple.
- 1.5%: Current dividend yield.
Gildan Activewear Inc. (TSX:GIL)(NYSE:GIL) has seen its stock rise 32% this year, and it reported a solid third quarter with net sales climbing to $910.6 million and a strong 17.6% jump in adjusted earnings. This performance comes as the Montreal-based company pursues its transformative $2.2 billion acquisition of Hanesbrands, a move critical for its future growth.
For the quarter ended Sept. 28, Gildan’s net sales edged up from $891.1 million a year ago. While net profit dipped to $120.2 million, or 80 cents US per diluted share, the company’s underlying performance was robust. Adjusted earnings rose to $1.00 per diluted share, up from 85 cents US last year. Following the results, Gildan slightly tightened its full-year adjusted EPS guidance to a range of $3.45 to $3.51.
Despite the strong quarter and impressive stock gains of 187% over the past five years, the company’s top line has shown limited organic growth recently. In 2024, its sales were $3.3 billion, only slightly more than the $3.2 billion it reported a couple of years earlier. This stagnation is why the Hanesbrands deal is so crucial. Currently, the stock trades at a P/E multiple of 20, but a more attractive forward P/E of 13, suggesting investors are optimistic about future earnings. It also offers a 1.5% dividend yield, just above the S&P 500 average of 1.2%.
A New Strategic Direction
The $2.2 billion cash-and-stock deal to acquire Hanesbrands is the central focus for investors. It values Hanesbrands at approximately $6 per share and is expected to be immediately accretive to Gildan’s adjusted profit per share upon its projected closing in late 2025 or early 2026.
This move combines Gildan’s strength in low-cost manufacturing with Hanesbrands’ portfolio of retail names, including Hanes and Maidenform. It also marks a new chapter for Hanesbrands, which has struggled with debt and competition, leading it to sell its Champion brand for $1.2 billion last year.
Given its stagnant organic sales, Gildan is a stock for investors betting on the success of the Hanesbrands acquisition. The attractive forward P/E suggests value if the company can successfully integrate the two businesses and unlock new synergies.