Put HanesBrands in Your Drawer

04/15/2015 7:00 am EST


Tyler Laundon

Editor, Cabot Small-Cap Confidential

Life experience and a little research suggests there is always need for new underwear, jests Tyler Laundon, editor of Top Stock Insights.

HanesBrands (HBI) is a stock that you put in your drawer and leave there. Like the socks, T-shirts, undergarments, sweatshirts, and other soft-goods items that Hanes sells, the stock has a place in every investor's portfolio.

The $12.5 billion market cap company—which is 114 years old—was spun out of Sara Lee in 2006 and went public as a stand-alone entity. Since that time the stock is up over 400%.

In 2010, the company had operating profit of only $381 million and cash flow from operations of $133 million. Fast forward to 2014 and it delivered operating profit of $763 million and $508 million in cash from operations.

What really interests me right now about HanesBrands is the company's ability to add revenue and profit growth through acquisitions. Maidenform Brands was purchased for $580 million in October, 2013.

And in August 2014, HanesBrands acquired DBApparel, France's biggest mass-maker of intimate apparel and brought in well-known European brands Dim, Playtex, and Wonderbra.

Most recently, HanesBrands added Knights Apparel for $200 million. Knights makes licensed collegiate sports apparel and has exclusive arrangements with the top 50 selling schools.

Clearly, HanesBrands is on the prowl, looking to add to its growing stable of leading brands. But what impresses me is that it appears consistently able to drive down costs and increase margins once it gets these acquisitions integrated.

With dominant brands and pricing power in its key markets, as well as a small push in to more premium products, I see no reason to believe HanesBrands won't enjoy significantly better growth than the industry average.

With the markets trading near all-time highs, I view HanesBrands as a relatively conservative growth stock that investors can start buying right now. I expect double-digit revenue and earnings growth, with much more rapid dividend growth, will keep powering this stock higher.

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