A robust price target increase from an analyst tracking clothing conglomerate Gildan Activewear (GIL 2.87%) put lots of energy into the stock on Tuesday. Taking a cue from that move, investors pushed into the stock, propelling it to a nearly 6% price gain on the day.
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The analyst behind the move was UBS's Jay Sole. Before the market open, he raised his Gildan price target nearly 38% to $110 per share, from his previous level of $80. He also maintained his buy recommendation on the stock.
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Sole's new take on Gildan is based largely on the company's recent acquisition of peer apparel company Hanesbrands, which is chiefly known for its undergarments. In the analyst's view, owning the new asset gives Gildan a scope it couldn't achieve purely by itself. Among other benefits, Hanesbrands's retail presence should help lift the visibility of Gildan's offerings.
Another benefit of the acquisition is the potential sell-off of Hanesbrands's Australia business. Sole believes the proceeds from such a divestment could be used to reduce Gildan's debt, and perhaps consider reinstating share buybacks.
NYSE: GIL
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Lending a hand
The Hanesbrands deal, which closed at the beginning of December, has brought a highly complementary and synergistic asset into the Gildan fold. I agree with the UBS pundit that Hanesbrands has the power to increase its new owner's presence on store shelves, thereby improving its overall fundamentals. I'd be a buy on Gildan stock too.
