Hanesbrands Inc. - NYSE:HBI - Comprehensive analysis
We believe narrow-moat Hanesbrands is an attractive investment, trading at approximately a 70% discount to our fair value estimate of $16.30. Our moat rating is based on the company's strong intangible brand assets. Hanesbrands owns several well-known brands in the basic innerwear market in the United States and Australia, many of which command higher prices and achieve greater sales volumes than competing brands. In 2024, Hanesbrands sold its Champion brand to Authentic Brands Group for a favorable price of $1.2 billion, with the potential for an additional $300 million in earn-outs. This sale will enable Hanesbrands' management to concentrate on enhancing its core brands and products. Additionally, the divestiture is expected to positively impact margins, as innerwear has historically demonstrated more consistent profitability compared to Champion.
Hanesbrands generates over 70% of its sales in the U.S. but also has significant international growth opportunities. The company has found particular success in Australia, where its Bonds brand and others hold dominant market shares. Hanesbrands is actively working to reduce its debt, which we believe is highly advantageous for shareholders. The firm has eliminated its quarterly dividend and is utilizing nearly all of its available free cash flow for debt reduction. Proceeds from the Champion sale have also been allocated to retire debt. By the end of 2024, Hanesbrands had approximately $2.3 billion in debt, having paid down about $1 billion during the year. This effort has reduced the company's debt/adjusted EBITDA ratio from 5.2 times to 3.4 times.
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