By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 9/20/10 Sign up for free Cabot Wealth Advisory e-newsletter
Gildan Activewear (GIL) is headquartered in Canada, but conducts its business worldwide and is traded on U.S. exchanges. The company’ sales and earnings have grown very rapidly in the past and will very likely continue to grow at a rapid pace well into the future. The company has geared up by adding substantial capacity, cutting costs and streamlining operations to become more efficient.
Gildan Activewear manufactures basic apparel including T-shirts, sport shirts, socks and sweat clothes. The company sells plain garments, known as blanks, to screenprinters and decorators who add designs and logos. Gildan, based in Montreal, is the leading supplier of blank garments in the U.S., Canada and Europe. The company is adding new products including men’s and boy’s underwear, and expanding geographically into Mexico and Asia. The company has steadily boosted its U.S. market share for major items to 63%, partly because of the low price of its products.
Gildan is experiencing stronger demand from wholesalers and from mass-market retailers, such as Walmart. Higher demand has enabled the company to boost prices recently to offset rising cotton costs. The company is building two new textile and sock manufacturing facilities in Honduras to meet growing demand.
Gildan is also building a modern distribution center in North Carolina and has begun using its biomass steam generation system designed to save energy in the company’s manufacturing facilities in the Dominican Republic. The enlarged capacity and increased efficiency will help boost sales by 17% and EPS by 24% during the next 12 months. The company has a strong balance sheet with minimal debt and lots of cash. Gildan pays no dividend. At 14.2 times our 12-month forward EPS estimate of 2.04, GIL shares are undervalued.
J. Royden Ward
Editor of
Cabot Benjamin Graham Value Letter A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of
Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the
Value Letter.