Why HanesBrand (HBI) Was Downgraded

Story updated at 9:45 a.m. to reflect market activity.

NEW YORK (TheStreet) -- HanesBrand (HBI) was downgraded to "neutral" from "outperform" by Stifel Nicolaus Friday.

HanesBrand fell 0.8% to $74.29 in morning trading.

The analyst firm removed its price target for the company, which was previously set at $73. The downgrade was due to limited potential organic margin improvement and earnings leverage.

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Separately, TheStreet Ratings team rates HANESBRANDS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate HANESBRANDS INC (HBI) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, notable return on equity, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, HBI's share price has jumped by 85.82%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HBI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 17.0%. Since the same quarter one year prior, revenues rose by 11.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, HANESBRANDS INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has increased to $334.30 million or 39.58% when compared to the same quarter last year. In addition, HANESBRANDS INC has also vastly surpassed the industry average cash flow growth rate of -23.08%.
  • HANESBRANDS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HANESBRANDS INC increased its bottom line by earning $3.25 versus $2.31 in the prior year. This year, the market expects an improvement in earnings ($4.72 versus $3.25).
  • You can view the full analysis from the report here: HBI Ratings Report

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