Love-in for Gildan purchase builds

Analysts and investors are loving Gildan Activewear's plan to buy sock maker Gold Toe Moretz Holdings for $350-million (U.S.).

Analysts are cranking up target prices for Gildan , but investors are pushing up the share price even faster.

The stock is up 11 per cent since the acquisition was announced. After more increases Thursday, the average 12-month target of 16 analysts surveyed by Bloomberg now stands at $36.86 (Canadian), up from under $35 prior to the acquisition's announcement.

CIBC said the price paid, based on a multiple of sales and operating earnings, are attractive and the $10-million (U.S.) to $15-million of cost synergies that Gildan is targeting in the first two years "likely understate the longer-term opportunity."

CIBC analyst Mark Petrie increased his per-share earnings estimate to $2.04 from $1.88 for fiscal 2011 and to $2.62 from $2.31 in 2012. That yields a new target price of $42, up from $36.

Also on Thursday, Paradigm Capital analyst Spencer Churchill raised the company to "buy" from "hold" and put on a $44 target.

Earlier this week, TD Securities analyst Jessy Hayem put a $43 (Canadian) target on Gildan because of the acquisition's effect on earnings, up from $39 previously. That's even after reducing the multiple she uses to account for integration risk.