Gildan Activewear's Target Cut: Navigating Headwinds with Operational Strength

Marcus LeeMonday, Apr 21, 2025 1:23 pm ET
23min read

The National Bank Financial analyst Vishal Shreedhar recently lowered Gildan Activewear’s (GIL-T) price target to Cdn$72 from Cdn$83, maintaining an "outperform" rating despite the reduction. This move reflects cautious optimism amid macroeconomic uncertainty, trade policy risks, and pressures in the U.S. wholesale industry. Gildan’s ability to balance operational resilience with strategic flexibility will be critical as it navigates these headwinds.

The Target Cut: A Prudent Adjustment or Overreaction?

Shreedhar’s decision stems from revised estimates tied to macroeconomic volatility, including U.S. trade policy shifts and weak equity markets. The analyst trimmed 2025 EPS to $3.35 (from $3.48) and 2026 EPS to $3.81 (from $3.94), citing IT investments and credit market pressures as drags on profitability. Despite this, National Bank retains an "outperform" rating, signaling long-term confidence in Gildan’s fundamentals.

The stock’s valuation now trades at 12.1x NTM EPS, below its five-year average of 15.5x, suggesting investors are pricing in near-term risks. This discount could prove advantageous if Gildan executes its strategy to capitalize on U.S. trade restrictions, which may disrupt competitors and allow the company to gain market share via its low-cost manufacturing in Bangladesh and Central America.

Operational Resilience Amid Headwinds

Gildan’s Q1/25 sales are projected to grow by low-single digits to $714 million, driven by cost efficiencies in its Bangladesh production ramp-up and yarn modernization. EBIT margins are expected to expand by 50 basis points year-over-year to ~18.5%, reflecting tax benefits and supply chain optimization. While Q1 EPS of 57 cents aligns with consensus, it marks a 2-cent year-over-year decline—a minor setback that underscores the need for proactive guidance adjustments.

The company’s low-cost manufacturer status remains a key advantage. Its vertically integrated facilities in Bangladesh, Central America, and the Caribbean allow it to undercut rivals facing U.S. trade tariffs or supply chain bottlenecks. This strategic positioning could prove decisive if trade tensions persist, as competitors like Fruit of the Loom or Hanesbrands may struggle with rising costs.

Risks and Catalysts to Watch

  1. Guidance Trimming: National Bank emphasizes that transparent adjustments to 2025 guidance—if delayed—could spook investors. Proactive management here could rebuild confidence.
  2. Share Buybacks: Gildan’s $500 million buyback program (announced in late 2024) remains a growth lever, though its impact hinges on stock price stability.
  3. Earnings Call on April 29: Results for Q1/25 will be scrutinized for signs of resilience. A beat on EPS or margin expansion could narrow the gap between Gildan’s current valuation and its street average target of Cdn$87.37.

Valuation and Market Sentiment

While National Bank’s cut reflects caution, the analyst’s Cdn$72 target still implies ~80% upside from its April 2025 price of Cdn$39.78. This gap highlights the market’s divided sentiment: institutional investors like Connor, Clark & Lunn (up 604% in holdings) are betting on Gildan’s long-term potential, while others like Browning West LP (down 41.6%) see near-term risks.

The stock’s P/E ratio of 15.91 and beta of 1.16 suggest it’s volatile but undervalued relative to its growth trajectory. If Gildan’s Q1 results affirm its margin resilience and market share gains, the stock could rebound sharply.

Conclusion: A Buy on Volatility, a Hold on Macro

Gildan’s target cut underscores a prudent recalibration to macro risks, but its operational strengths and undervalued multiple position it as a high-reward, high-risk bet. Investors should focus on April’s earnings call as a catalyst: a strong Q1 could narrow the valuation discount and lure back institutional buyers.

With 12.1x NTM EPS and a low-cost manufacturing edge, Gildan remains well-positioned to capitalize on U.S. trade disruptions. However, its path to the Cdn$83 street average hinges on navigating near-term volatility. For now, the stock appears undervalued but speculative, suitable for investors willing to bet on Gildan’s ability to outperform in turbulent markets.

In summary, Gildan’s valuation and operational resilience make it a compelling play on the apparel sector—if the company can prove its agility in an uncertain macro environment. The coming weeks will test that agility.