Raymond James Bullish On Gildan Activewear Going Into Earnings

by: FP Trading Desk

T-shirt maker Gildan Activewear Inc. (NYSE:GIL) has a habit of issuing earnings forecasts, and then not meeting them. Quite often, however, the low-cost producer overshoots its target. So it’s not surprising that analysts on average figure it will earn C62¢ a share in the second quarter – C1¢ ahead of Gildan’s implied forecast – when it reports on Thursday.

Raymond James analyst Candice Williams is a mite more bullish. She forecasts C64¢ per share in a note published Tuesday. That is based on 20% volume growth, offset by lower gross margins due to higher cotton costs. Gildan could do even better, she writes, if it can grow volumes or deliver manufacturing efficiencies faster than anticipated.

The company, now branching out into socks, is very much a best-in-class player in today’s global textile business, aggressively driving down costs where possible. That means jobs have been leaving Canada and the US and moving offshore to its massive new plants in the Caribbean and Central America.

One thing is for certain – Gildan is trading at a pricey valuation of 24-times Ms. Williams’ forecast earnings for this year.

Still, “despite what may seem like a relatively full valuation, we believe that Gildan’s collection of desirable investment characteristics and meaningful penetration of the retail channel will allow for multiple expansion,” she writes. And while the stock is already up by 36% in 2007, “we continue to believe that long-term investors will be amply rewarded.”