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 per cent of potential upside. They trade at discounts to peers despite above-average 12-month growth. (All figures in U.S. dollars)
3. Hanesbrands Inc. makes apparel essentials. (Read: underwear.) It owns the Hanes, Champion, Playtex, Bali and L'eggs brands.
Quarter: Third-quarter profit surged 49 per cent to $61-million, or 63 cents a share, as sales advanced 10 per cent to $1.2-billion. Hanes beat analysts' consensus earnings target by 1.9 per cent and their sales target by 1.7 per cent. Its gross margin narrowed from 35 per cent to 33 per cent and its operating margin contracted from 10 per cent to 9.7 per cent. 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 per cent 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 per cent, 49 per cent and 71 per cent 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 per cent discount to estimated long-term fair value. Hanes has advanced 15 per cent 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 per cent. Bullish forecaster Stifel Financial predicts that the stock will advance 36 per cent to $38. Credit Suisse forecasts a gain of 33 per cent to $37. On the other hand, Sterne, Agee & Leach expect Hanes shares to rise 11 per cent 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.
2. G-III Apparel Group Ltd. designs outerwear and sportswear, including coats, jackets and suits. It sells its products to retailers such as Macy's and Kohl's.
Quarter: G-III swung to a fiscal second-quarter profit of $3-million, or 15 cents a share, from a year-earlier loss of $2.8-million, or 17 cents a share. Revenue grew 39 per cent to $189-million. The gross margin extended from 30 per cent to 32 per cent and the operating margin climbed from negative territory to 3 per cent. G-III held $6.1-million of cash at the end of the quarter and $77-million of debt, equaling a quick ratio of 0.6 and a debt-to-equity ratio of 0.3. G-III has boosted revenue 25 per cent annually, on average, since 2007 and expanded earnings per share 29 per cent a year over that span.
Stock: G-III Apparel Group shares sell for a trailing earnings multiple of 11, a forward earnings multiple of 8.9, a book value multiple of 2.2 and a sales multiple of 0.6, 54 per cent, 53 per cent, 56 per cent and 74 per cent discounts to textiles and apparel industry averages. However, its cash flow multiple of 31 represented a 97 per cent premium to its peer average. Still, G-III's PEG ratio of 0.2 signals an 80 per cent discount to estimated long-term fair value. G-III has returned 29 per cent year-to-date, outperforming U.S. stock indices. It has delivered annualized gains of 30 per cent since 2007.
Consensus: Of researchers evaluating G-III, six, or 75 per cent, advocate purchasing its shares and two recommend holding. None advise selling. A median price target of $39.17 implies an impending one-year gain of 40 per cent. Piper Jaffray predicts that G-III's stock will appreciate 43 per cent to $40. The lowest price targets come from Stifel Financial and Lazard Capital Markets, which both expect G-III shares to rise 29 per cent to $36. G-III, which has been a licensee of the NFL since 1988, just signed an exclusive agreement expanding its relationship with the league.
G-III, though not a closely followed company, with a market value of just $526-million, also has licence agreements with Calvin Klein, the National Hockey League, the National Basketball Association and Major League Baseball.
1. Summer Infant designs, markets and distributes kids health, safety and wellness products throughout North America and the U.K.
Quarter: Third-quarter net income increased 15 per cent to $2.1-million and earnings per share rose 8.3 per cent to 13 cents. Revenue increased 22 per cent to $50-million. The gross margin remained steady at 36 per cent and the operating margin declined from 7.9 per cent to 6.4 per cent. Summer Infant held $1.3-million of cash and $49-million of debt at the end of the quarter, translating to a reasonable debt-to-equity ratio of 0.6. During the past three years, Summer Infant has boosted revenue 60 per cent annually, on average, and increased earnings per share 41 per cent a year, on average.
Stock: Summer Infant shares trade at a trailing earnings multiple of 15, a forward earnings multiple of 11, a book value multiple of 1.5 and a sales multiple of 0.6, 18 per cent, 29 per cent, 63 per cent and 57 per cent discounts to industry averages. Its PEG ratio of 0.5 reflects a 50 per cent discount to estimated long-term fair value. Summer Infant has advanced 60 per cent year-to-date and has delivered annualized gains of 11 per cent since 2007. Summer Infant has fallen 19 per cent from a 52-week high recorded in August. It missed analysts' consensus third-quarter earnings target by 9 per cent and sales target by 1.1 per cent.
Consensus: Of analysts following Summer Infant, seven, or 88 per cent, advocate purchasing its shares and one recommend holding them. None are advising clients to sell. A median price target of $10.50 suggests a looming 12-month return of 46 per cent. Small-cap focused Needham & Co. offers a target of $12, implying a gain of 67 per cent. On the other end of the spectrum, Canaccord Genuity forecasts that Summer Infant's stock will rise 25 per cent to $9. The company is pushing into new markets. It recently launched its Prodify Infant Car Seat and Travel System.
Management has recently warned of margin contraction amid higher commodity costs. Still, increased shelf space and new product launches will sustain growth.