Don't Sell Hanesbrands Short

Hanesbrands Inc. (HBI - Analyst Report) is a manufacturer and marketer of innerwear, outerwear and hosiery apparel, which are sold under the brand names of Hanes, Champion, Playtex, Bali, Just My Size, Barely There, L'eggs, Outer Banks, and Wonderbra. Approximately 90% of the company's sales are in the United States. The company was spun-off from Sara Lee Corporation (SLE - Analyst Report) in September 2006.

Management's business model requires only modest sales growth to create substantial EPS growth. Earnings are being driven by brand building and cost-reduction initiatives. Since the spin-off in September 2006, the company has reduced debt by $285 million, lowering interest expense from the post spin-off financial structure.

However, management is reporting non-GAAP EPS, which excludes unusual actions, which may be distorting perceived earnings. The Buy rating is maintained due to valuation.