UPDATE: Goldman Sachs Upgrades Hanesbrands (HBI) to Buy

Goldman Sachs upgraded Hanesbrands (NYSE: HBI) from Neutral to Buy with a price target of $40.00 (from $32.00), suggesting upside of 32%. Analyst Taposh Bari sees Hanesbrands as best-in-class and pointed out pricing power, superior returns, and capital allocation.

"Against a backdrop of modest US consumption growth, heightened emerging market risks and product cost deflation, we see HBI’s superior 20% ROIC expanding further as a result of 1) pricing power across a portfolio of basic apparel, 2) an advantaged M&A strategy," said Bari. "We believe the added benefits of an under-levered balance sheet, meaningful capital returns (dividend growth and buybacks), proven execution history and developed market exposure warrant HBI’s premium valuation."

The analyst continued, "While the stock has outperformed YTD, we see an opportunity to buy a best-in-class operator that we believe is positioned well in the current environment following a 12% correction from its April 2015 high (versus the S&P 500 down 6%). We view negative organic revenue revisions in the innerwear segment as transient and likely to be resolved by year-end. Moreover, the company met 2Q15 EPS expectations, grew organic EBIT 10% and maintained FY15 guidance. Looking ahead, the benefits of lower cotton and buybacks should begin in 2H15 and the core drivers of the bull case – margin expansion and M&A – remain in place."

For an analyst ratings summary and ratings history on Hanesbrands click here. For more ratings news on Hanesbrands click here.

Shares of Hanesbrands closed at $30.26 yesterday.

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