We came across a bullish thesis on Gildan Activewear Inc. (GIL) on ValueInvestorsClub by komrade.kapital. In this article, we will summarize the bulls’ thesis on GIL. GIL’s stock was trading at $39.48 when this thesis was published, vs. a closing price of $48.85 on November 12.
Gildan, incorporated in 1984, is a vertically integrated manufacturer and distributor of low-cost T-shirts, fleece, and other apparel in the North American region. With a dual-channel approach of distributors and retailers, GIL is the market leader in the open-end t-shirt segment, which occupies 80% of the market.
Currently, GIL aims to capture a large portion of the higher-margin ring-spun t-shirt segment, which occupies a 30% market share. This is backed by a $500 million investment in a new manufacturing plant in Bangladesh, which will drastically cut the per-unit cost and put GIL in a position to outprice its rivals such as Bella+Canvas and Next Level. GIL can successfully compete in the $2 billion ring-spun segment, which increases by 10% per year, using lower production costs but offering products of equal quality.
GIL controls 90% of the Murata Vortex Spinning (MVS) yarn necessary to produce fleece apparel in the United States. It also allows supply access to other affiliated firms, as well as the cost of production and tariffs. In particular, by reallocating production capacity for fleece in Honduras, GIL is ready to win more shares in the $5 billion global fleece market, where it has only 15% of the market share.
A recent change in the GIL’s board of directors due to activist shareholder Browning West has changed the company’s strategic objectives. With the backing of CEO Glenn Chamandy, the board aims to optimize capital allocation, increase market share, and pursue cost-saving initiatives. This change is consistent with the shareholders’ needs, enabling the company to develop sustainably.
Building on this, GIL’s forward P/E ratio is under 10 times its projected 2025 EPS, making it relatively undervalued for a company in a leadership position with high reinvestment rates. GIL’s EPS can rise to $6.50-$7.20 by 2029 by capturing opportunities in ring-spun and fleece products. And, if valued at a 16 times EPS multiple, the company’s shares may climb to a whopping $104-$115 till 2029 with about 24% IRR.
Although risks such as political instability in the production countries and fluctuation of the American consumers’ demand for t-shirts exist, the company has a unique strategic location and lower costs than competitors, making GIL a lucrative investment.
