The question on investor's minds should be, naturally, does a spinoff make sense? To give a little background, Cramer referred back to the GM-Delphi spinoff, opining that the two auto units were too tangled to properly unwind. In this case, it may be a bit simpler; after all, he asked, does it make sense for a cupcake and meat company to own an underwear company? Nope, said he, the two units needed to be under a different roof. Can HBI make you money? Cramer says, "yes."
Hanesbrands shares traded up 2.3% to $23.18 in after-hours trading after Cramer's well-reasoned recommendation, especially after he referred back to several prior deals, including the Freescale spinoff, the Coach spinoff, and the Darden spinoff.
He did say that Sara Lee forced it to take on a lot of debt, but the company's lower margins may improve since manufacturing has been moved internationally.
In a call-in Cramer said he thinks Under Armour, Inc. (NASDAQ:UARM) is going higher. In another call Cramer said Jos. A Bank Clothiers, Inc. (NASDAQ:JOSB) is a "stay away" story.
Jon Ogg is a partner in 24/7 Wall St., LLC; he does not own securities in the companies he covers.
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Reader Comments (Page 1 of 1)
10-11-2006 @ 8:28PM
casper baratta said...
Re: Bank of America free trade policy- It was awful nice of them to downgrade a competitor then undercut them. I have an account with their credit card div. but not for long. I also have an account with Amtd and that's where it will stay. I personally think their method of ethics stinks.
10-12-2006 @ 3:23AM
Gary E. Sattler said...
I wouldn't touch this until the dust settles and the details work themselves out. Too many corporate agenda questions. Of course I dislike the outsourced labor angle also.
Both Hanes and Jockey are known for questionable workforce ideals.
If however, you are comfortable with Hanes and how they do business, they're a pretty safe bet for the long haul.
This spin off situation... I'm just not sure what to tell you. It feels kind of mushy to me.
10-13-2006 @ 3:36PM
George Burfeind said...
While Jim Cramer makes some valid assumptions regarding the new spinoff, HanesBrands, there is one point to keep in mind. Wal-Mart still is the big gorilla in soft goods apparel and they control so much of the sales of Hanes products that they call most of the shots. Issue is whether either the Hanes brand or Walmart has the upper hand in business dealings, hopefully for Hanes it will be equal footing with two powerhouses.
10-19-2006 @ 10:22PM
V said...
The only risk here comes from lack of data. It is apparent to me that Hanes has the "moat" of the underwear business, with a very strong history of best selling products, such as Leggs. It is highly unlikely that they will go out of business, even if some analysts are calling this "junk" due to the excess debt.
As Ben graham said in Security Analysis, "nearly every business is cheap at one price, and expensive at another"
The HBI current price of $23 is a full $10 under book value, and the current PE ratio is 6.87 (with a reported 11% equity growth???). In addition, Institutional Ownership is at 0.2%. This solid business is being given away with no takers!
11-10-2006 @ 5:45PM
V said...
Everything going as planned and the price keeps coming down. Time to back up the truck at $22.
So what do the Hanes management think of this?
http://quicktake.morningstar.com/Stock/Ownership.asp?Country=USA&Symbol=HBI&stocktab=owners&pgid=qtqnnavown
(link to insider transactions for the end of September 2006)