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Hanesbrands (HBI): Time to Dump the Stock from Portfolio?

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In order to cushion their portfolio, it is important for investors to exit underperforming stocks, which may dent their portfolio returns. Well, basic apparel retailer Hanesbrands Inc. HBI seems to be one such underachiever that needs to be plucked out of investors’ stock garden immediately.

This Zacks Rank #4 (Sell) stock has declined 31% over the past one year, underperforming the Zacks categorized Textile-Apparel  industry which showcased a decline of 24% during the same time frame. We note that the industry occupies a space in the bottom 13% of the Zacks Classified industries (222 out of the 256). Let’s delve deeper to find out what’s weighing upon investor sentiment.

What’s Wrong with Hanesbrands?

Hanesbrands has been witnessing downward estimate revisions following its lower-than-expected top-line and bottom-line in the fourth quarter of fiscal 2016, reported on Feb 2, 2017. Although earnings of 53 cents improved 20% year over year, it missed the Zacks Consensus Estimate of 58 cents by 8.6% due to lower-than-expected traffic at its stores. Further, the top line of $1.6 billion missed the Zacks Consensus Estimate by 6.5% during the quarter due to weaker-than-expected retail environment in the U.S. (Read: Hanesbrands  Q4 Earnings, Revenues Miss Estimates)

Apart from this, currency headwinds are also affecting the company’s sales negatively. Moreover, it is experiencing soft sales in the Activewear and direct-to-consumer segments. Further, a lackluster performance of the Champion brand also remains a concern.

Moreover, the company’s strategy to focus more on premium brands and increase prices in these categories come with the inherent risk of consumers shifting to more competitively-priced brands offered by competitors.

Further, its limited exposure to international markets makes it more susceptible to these factors. Moreover, the company unlike its peers does not have any manufacturing facilities in key growth markets like Asia and Latin America where labor is relatively cheaper.

Additionally, Hanesbrands’ business is heavily dependent on the tastes and preferences of consumers that keep changing with time. Hence, the failure to identify consumer needs and act accordingly may reduce demand for its products and weigh on financial performance.

Stocks to Consider

Better-ranked stocks in the broader consumer discretionary sector include:

Francesca’s Holdings Corporation FRAN has an earnings growth rate of 9.6% in the last four trailing quarters.

While Lululemon Athletica Inc. LULU has an expected earnings growth of 16%, Devry Education Inc. (DV - Free Report) has an expected earnings growth of 9.2%.

All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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