Lower Cotton Prices Might Cushion Gildan's Slide

Tag : cotton

Could easing cotton prices buoy Gildan Activewear Inc., ( GIL ) despite a softening economy and a gloomy time in themanufacturing sector?
Analyst Vishal Shreedhar of UBS Investment Research has initiatedcoverage on the stock with a buy recommendation and a price targetof C$33, saying the apparel manufacturer is an industry leader witha strong long-term track record.
“Gildan’s market share is 52%, up from 29% in2003,” he wrote in a note to clients. He noted thecompany’s five-year combined annual growth rate is 20.3% insales and 29.2% in per share earnings. His fiscal 2009 per shareearnings estimate is C$1.99.
Mr. Shreedhar said:
We believe Gildan will continue to gain market share as wholesaledistributors shift purchases to low cost suppliers...we note thatcotton prices have been steadily declining, which supports theoutlook.
But analyst Andy Nasr of Raymond James has tempered his outlook,reducing his price target to C$35 from C$40 and his recommendationto outperform from strong buy.
Mr. Nasr said:
Notwithstanding our predilection for the company’s marketshare in the North American market, we believe that the currenteconomic condition in the U.S. could weigh negatively onGildan’s earnings during the next 12 to 18 months.
He lowered his fiscal 2009 per share earnings estimates to C$1.88from C$2.10, reflecting weaker pricing related to a slowdown inend-market demand.
Negative consumer sentiment could further exacerbate weak marketdemand through 2009, he added, and the company’s ability topass through higher prices to wholesalers and retailers may behindered due to weaker than anticipated demand and a reluctance onthe part of screen printers to accept further price increases giventhe current market conditions.
Nevertheless, the analyst believes the stock is currently tradingat an attractive entry point for long-term investors.
Gildan closed at C$23.81, down C$0.68.