From Standard & Poor's Equity ResearchCredit Suisse started coverage of Hanesbrands Inc. (HBI
), which went public today, with an outperform recommendation and a $25 target price. The maker of underwear and hosiery was spun off from Sara Lee (SLE
Analyst Omar Saad says that given Hanesbrands' strong position at retail and replenishment nature of its business, he expects the company to generate sufficient cash flow to pay down debt and drive equity value. He believes Hanebrands' vertical integration (unlike most branded apparel vendors), less seasonal demand flow, and unparalleled scale provide the company with a meaningful cost advantage over private label.
He bases his $25 price target on conservative assumptions of 250 basis points of EBIT margin expansion, flat sales, and $500 million of debt reduction over the next three years.