Hanesbrands' Bear Case Is Overstated

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About: Hanesbrands Inc. (HBI)
by: Praveen Chawla
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Praveen Chawla
Long only, momentum, Growth
Summary

Bears cite Hanesbrands' debt load and lack of tangible equity as justification for avoiding or shorting the shares. Over 20% of the float is shorted.

Hanesbrands generates huge amount of free cash flow. A large part of the free cash flow is earmarked for deleveraging. Hanesbrands has been reducing its cost of debt.

After a period of disruption in retail, Hanesbrands sales and EBITDA growth is stabilizing as the company adjusts to the new landscape. Revenues are increasing at a decent clip.

I am unconvinced by the bear case that Hanesbrands is being disrupted by Amazon. I believe Hanesbrands provides compelling value.

However, the fact is that the stock has been in a downtrend for nearly five years now. The stock is down >50% from it peak (while the S&P 500 is up ~50% during this time). Is Hanesbrands a value trap?

It's safe to say that Hanesbrands (HBI) is unlikely to win a popularity contest among investors. Since peaking in 2015, the stock has been in a relentless downward channel. Currently short % of