BOSTON ( TheStreet) -- Luxury retailers and discounters are getting plenty of Black Friday play, but little attention has been paid to the makers of apparel and consumer goods. Here are three small-cap stocks with the highest ratings and at least 27% of potential upside. They trade at discounts to peers despite above-average 12-month growth.
Quarter: Third-quarter profit surged 49% to $61 million, or 63 cents a share, as sales advanced 10% to $1.2 billion. Hanes beat analysts' consensus earnings target by 1.9% and their sales target by 1.7%. Its gross margin narrowed from 35% to 33% and its operating margin contracted from 10% to 9.7%. Hanes held $76 million of cash and $2.1 billion of debt at the end of the quarter, converting to a quick ratio of 0.6 and a debt-to-equity ratio of 3.8. Hanes has grown sales 7.9% annually, on average, since 2007. An acquisition of Gear for Sports is currently pending.
Stock: Hanes shares trade at a trailing earnings multiple of 15, a forward earnings multiple of 9.9 and a sales multiple of 0.6, 40%, 49% and 71% discounts to textiles, apparel and luxury goods industry averages. The stock's book value multiple of 4.8 and cash flow multiple of 16 are on par with peer means. Still, a PEG ratio, a measure of value relative to growth, of 0.1 signals a 90% discount to estimated long-term fair value. Hanes has advanced 15% year-to-date, more than double the rise of the S&P 500 Index. It has fallen from a 52-week high, recorded in April.Consensus: Of analysts following Hanes, seven advise purchasing its shares and two recommend holding them. A median price target of $35.14 suggests a looming 12-month return of 27%. Bullish forecaster Stifel Financial predicts that the stock will advance 36% to $38. Credit Suisse forecasts a gain of 33% to $37. On the other hand, Sterne, Agee & Leach expect Hanes shares to rise 11% to $31. Restructuring charges decreased in the latest quarter and Hanes recently refinanced $1 billion of debt, extending its maturity to 2020. No one likes finding underwear and socks in their stocking. Some gifts are necessary, though boring, staples. Hanes is a compelling value investment with holiday-season momentum.
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