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Zacks Investment Research upgraded Hanesbrands, Inc (HBI - Analyst Report) to a Zacks Rank #1 (Strong Buy) on Jun 7 on the back of rising estimates following impressive first quarter 2013 results announced on Apr 23.

Why the Upgrade?

Hanesbrands’ focus on innovation, emphasis on higher-priced and higher-margin products, lower cotton costs and prudent expense management led to the solid results. In addition, the ‘Innovate to Elevate’ strategy helped Hanesbrands achieve higher unit selling prices and lower unit costs, which contributed to margin enhancement and improved profitability in the first quarter.

Hanesbrands delivered first-quarter 2013 earnings of 51 cents compared to a loss of 25 cents suffered in the comparable prior-year quarter. The upswing was driven by lower cotton cost and disciplined cost management. Earnings also beat the Zacks Consensus Estimate by 1.9%. In fact, Hanesbrands has topped earnings estimates in all of the last five quarters.

Though revenues were impacted by a tough retail environment and lower consumer demand, gross margin inflated 140 basis points (bps) in the quarter, resulting from positive pricing and shutdown of underperforming businesses. Operating margin also expanded 790 bps to 9.0% on the back of lower cotton costs, positive pricing and success of the Innovate-to-Elevate strategy, which boosted margins.

Estimates have mostly increased after the strong first quarter results. The Zacks Consensus Estimate increased 0.9% to $3.44 per share for 2013, while it grew 2.0% to $4.05 per share for 2014 over the past 60 days.

Other Stocks to Consider

Like Hansbrands, its peer Michael Kors Holding Ltd (KORS - Analyst Report) also holds a Zacks Rank #1. Other stocks in the textile and apparel industry that are worth considering are G-III Apparel Group, Ltd. (GIII - Snapshot Report) and Joe’s Jeans Inc (JOEZ - Snapshot Report), both of them carrying a Zacks Rank #2 (Buy).

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