Tuesday, June 30, 2009 12:00 PM
Change might be good for Gildan
David Berman
Investors recoiled from Gildan Activewear Inc. GIL-T on Monday, on concerns about a change in government in Honduras and what it could do to Gildan’s sock manufacturing activities there. On Tuesday, investors jumped back in...in anticipation of a change in government and what it could do for Gildan’s sock manufacturing activities.
Martin Landry, an analyst at Desjardins Securities, acknowledged that the coup raises political risks for Gildan and he lowered his price target on the stock to $16.50 (U.S.) from $18.50 previously. (The shares trade in New York as well as Toronto.)
“Until recently, the country had achieved a level of political stability, enjoying over 30 years of peaceful democracy,” he said. “In light of recent developments, we believe that investors are now likely to apply a discount to Gildan owing to geopolitical risk.”
However, Mr. Landry maintained a “buy” recommendation on the shares because he does not think that the day-to-day operations of Gildan will be affected by the coup, due to relatively little civil unrest.
“Moreover, we view the possibility that the country’s assets will be nationalized to be remote. Gildan’s management confirmed that Honduras’ borders were open as usual and that the seaport of San Pedro Sula, through which Gildan ships all of its goods manufactured in Honduras, was operating as usual.”
This is particularly interesting though: Mr. Landry thinks the coup could even work in Gildan’s favour. That’s because the outgoing president had left-leaning affiliations, joining the Bolivarian Alternative for the Americas, which is led by Venzuelan president Hugo Chavez. The incoming government – if it holds onto power and becomes recognized following the coup – could be more business-friendly.
“Regardless, until the political situation stabilizes, the outlook is cloudy,” Mr. Landry said.
