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Could easing cotton prices buoy Gildan Activewear Inc., (NYSE:GIL) despite a softening economy and a gloomy time in the manufacturing sector?

Analyst Vishal Shreedhar of UBS Investment Research has initiated coverage on the stock with a buy recommendation and a price target of C$33, saying the apparel manufacturer is an industry leader with a strong long-term track record.

“Gildan’s market share is 52%, up from 29% in 2003,” he wrote in a note to clients. He noted the company’s five-year combined annual growth rate is 20.3% in sales and 29.2% in per share earnings. His fiscal 2009 per share earnings estimate is C$1.99.

Mr. Shreedhar said:

We believe Gildan will continue to gain market share as wholesale distributors shift purchases to low cost suppliers...we note that cotton prices have been steadily declining, which supports the outlook.

But analyst Andy Nasr of Raymond James has tempered his outlook, reducing his price target to C$35 from C$40 and his recommendation to outperform from strong buy.

Mr. Nasr said:

Notwithstanding our predilection for the company’s market share in the North American market, we believe that the current economic condition in the U.S. could weigh negatively on Gildan’s earnings during the next 12 to 18 months.

He lowered his fiscal 2009 per share earnings estimates to C$1.88 from C$2.10, reflecting weaker pricing related to a slowdown in end-market demand.

Negative consumer sentiment could further exacerbate weak market demand through 2009, he added, and the company’s ability to pass through higher prices to wholesalers and retailers may be hindered due to weaker than anticipated demand and a reluctance on the part of screen printers to accept further price increases given the current market conditions.

Nevertheless, the analyst believes the stock is currently trading at an attractive entry point for long-term investors.

Gildan closed at C$23.81, down C$0.68.

Source: Lower Cotton Prices Might Cushion Gildan's Slide