Wall Street suddenly loves HanesBrands (NYSE:HBI), and analysts are sending its stock higher as one after another upgrades their outlook for the company.

But with shares of the clothing manufacturer doubling off their March lows and regaining all the ground lost due to the pandemic, should investors really think this is a good time to get in? 

Let's take a closer look and see if HanesBrands is a buy.

Two women in sunglasses wearing T-shirts

Image source: HanesBrands.

A good fit

There's certainly good reason for the analyst optimism. To begin with, HanesBrands owns a portfolio of well-known and respected brands that most consumers likely already own, including Hanes, Champion, Maidenform, Bali, Playtex, L'eggs, and Wonderbra.

Hanes alone is its top-selling apparel brand in the U.S., with 90% of American households having some assortment of its brand of underwear, socks, T-shirts, and hosiery.

It also has the benefit of operating most of its own manufacturing facilities, unlike many of its rivals who contract out for such work. HanesBrands says more than 70% of the apparel it sells is manufactured in its own plants or those of dedicated contractors.

A struggling brand

Yet its operations were just as much at risk as the competitions' during the pandemic because three-quarters of its revenue comes from third-party retailers, most of which were forced to close down. 

However, because it also sells to mass merchandisers like Walmart and Target, which combined account for 25% of total revenue, and they were able to remain operational during the pandemic, it was not completely shut off from retail sales. In fact, those two retailers were among the best performers during the crisis.

And HanesBrands' new CEO is an import from Walmart's operations.

Still, first-quarter results were severely impacted, and that was due to just two of the quarter's 13 weeks being upended. Sales that had been ahead of projections suddenly fell off the table and ended 17% lower than last year at $1.32 billion, while adjusted operating profit of $63 million was 63% lower year over year.

The path didn't improve

While the pandemic did undermine sales growth in the first quarter -- and likely also the second, which it will report at the end of the month -- sales were troubled beforehand.

Its fourth-quarter results saw a 1% decline while full-year sales were up just 2.4% as its department store channels struggled. That situation has only intensified during the pandemic and as a number of high-profile retailers have declared bankruptcy. It's not clear the crisis provides any real catalyst for growth.

HanesBrands also carries a lot of debt, some $4.2 billion entering into the second quarter, compared with $1 billion in cash and equivalents.

Capitalizing on opportunity

It was able to begin making protective face masks and gowns for the federal government to use during the pandemic and recently announced it delivered 320 million masks and 20 million medical gowns on time.

HanesBrands has also begun producing face masks for consumers and business-to-business customers. Masks made with a blend of cotton, nylon, and polyester will be available online and in retail stores under the Hanes and Champion brands.

And with its Champion sportswear brand, the company ought to be able to bite off a piece of the athleisure trend that soared during the lockdowns, boosting the fortunes of both apparel companies like lululemon athletica and fitness equipment makers such as Peloton Interactive.

Reason to hope

Where it can look for another boost is in the loss of some of its competition. L Brands' Victoria's Secret chain, for example, has been an even worse performer, and the retailer's owner has been trying to unload it. A potential sale to private equity firm Sycamore Partners fell through, and L Brands will close down underperforming stores as it works to turn the business around and separate itself from it.

HanesBrands also looks to be carrying a discounted valuation, as its stock trades for 10 times trailing earnings and next year's estimates, while also going for less than eight times the free cash flow it produces. 

Of course, it registered an $83 million use of operating cash flow last quarter, but that was a $110 million improvement over the year-ago period.

All of which suggests that HanesBrands might not be the screaming buy Wall Street's enthusiasm for the stock suggests, but it still represents a decent opportunity for investors looking for a previously struggling clothing company that should have some tailwinds behind it.