Category: Sectors

Gilden has approximately 80% market share in printwear basics and acquisitions have made it a stronger player in fashion basics

Business Strategy & Outlook

Gildan Activewear lacks a moat, which has put it in a difficult position as it navigates disruption from the coronavirus pandemic and inflation. While Gildan began a private-label men’s underwear contract with wide-moat Walmart in 2019, this product has largely replaced Gildan-branded underwear and only partially offsets losses in other areas. Narrow-moat Hanesbrands and Fruit of the Loom have stronger innerwear brands, allowing them to hold significant shelf space at Walmart, no-moat Target, and other critical retailers. Mass retailers reportedly account for more than 60% of total underwear sales in the United States. Gildan has purchased a few notable brands, including Gold Toe (socks) and American Apparel (inexpensive fashion/printwear), having invested about $500 million in acquisitions since 2014. The company, though, no longer reports branded apparel as a separate business segment and recorded an impairment to goodwill related to its hosiery in 2020. It acknowledges market share losses to private-label brands, especially in socks, and its total yearly hosiery and underwear sales declined 21% between 2017 and 2021.

There is a possibility that Gildan may end some of its hosiery programs to concentrate on its private-label business. Gildan’s success in printwear to its investments in the category and its cost-efficient production model. The firm has approximately 80% market share in printwear basics and acquisitions have made it a stronger player in fashion basics. Gildan’s printwear benefits from its strong supply chain as most of its clothing is manufactured in company-owned factories in low-wage, developing countries. Moreover, Gildan, unlike rivals, owns yarn-spinning factories in the U.S. that may improve its efficiency. In 2021, it bolstered its U.S. production with the acquisition of Frontier Yarns for about $170 million. Gildan’s investments have lowered its production costs, a permanent cost advantage hasn’t been created as its processes can be replicated by competitors and cost savings may be lost to lower prices.

Financial Strengths

In a move, Gildan cut spending to conserve cash during the COVID-19 crisis in 2020. Specifically, the firm lowered selling, general, and administrative expenses by 20%, suspended its dividends and share repurchases, and reduced its capital expenditures. However, as its results and finances improved in 2021, it stepped up cash usage, with capital expenditures of $127 million (4.4% of sales), about $250 million in share repurchases, and $90 million in dividend payments. Capital expenditures will rise to 6%-7% of sales over the next three years due to building projects and efficiency investments. Over the next decade, annual average repurchases of about $330 million and an annual average dividend payout ratio of 23%. Gildan’s total liquidity is solid. As of the end of September 2022, the firm had $920 million in debt, but also $69 million in cash and $680 million available on its revolving credit facility. Gildan will generate about $227 million in free cash flow to equity in 2022, more than enough to cover its obligations. Gildan renegotiated its debt covenants in June 2020 to avoid a possible violation. The firm closed 2019 with net debt/adjusted EBITDA of about 1.4 times, but this increased to 3.0 times at the end of 2020 because of the increased debt and a 70% drop in adjusted EBITDA for the year. However, its net debt/adjusted EBITDA fell to 0.6 times at the end of 2021 on debt reduction and higher EBITDA.

Bulls Say

Gildan has dominant market share in printwear basics and has invested in a low-cost production and distribution process to maintain its position. This business is recovering from the severe impact of the pandemic.
In 2019, Gildan won a contract with Walmart to supply men’s underwear for its in-house brand called George. While a blow to its branded business, the deal increased Gildan’s shelf space in the category.
Gildan’s Back to Basics efficiency strategy should allow it to hold operating margins around 18%, an improvement from prepandemic levels of about 15%.

Company Description

Gildan is a vertically-integrated designer and manufacturer of basic apparel, including T-shirts, underwear, socks, and hosiery. Its primary market is the sale of blank T-shirts and other apparel to wholesalers, major clothing brands, and printers (printwear). Gildan also sells branded clothing through retail and direct-to-consumer channels. Brands include Gildan, American Apparel, Comfort Colors, and Gold Toe. Gildan produces most of its clothing at factories in Latin America. The Montreal-based company generates most of its sales in the U.S. and was incorporated in 1984.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

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Tags US Market

Global stocks

Nufarm’s primary competitive strengths are marketing scale, dominant position in the Australian market, formulation expertise, and marketing skills

Business Strategy & Outlook

Nufarm is a major producer of crop-protection products including herbicides, fungicides, and pesticides, selling into all major world markets. The company is leveraged to growing demand for crops for biofuels, and food from rapidly industrializing markets such as China and India. Growth should come from astute brand and offshore business investments and from a customer service-focused strategy. However, the global crop-protection markets are competitive and earnings are cyclical, given a reliance on seasonal conditions. Sumitomo Chemical’s investment in Nufarm endorses the quality of its global distribution. Collaboration broadens product portfolios and adds distribution in Asia. Continued growth in food demand in industrializing nations should underwrite long-term earnings growth. Nufarm’s primary competitive strengths are marketing scale, dominant position in the Australian market, formulation expertise, and skills in marketing post-patent crop-protection products. Global expansion in recent years reduced dependency on the domestic market. The company’s dominance in Australia has become less certain, with glyphosate pricing coming under considerable pressure. Due to the competitive nature of its markets, lack of pricing power and exposure to cyclical agricultural demand, Nufarm doesn’t possess an economic moat. Returns on invested capital have historically failed to meet the cost of capital.

In addition to its crop-protection business, Nufarm has a seed technologies business. With this, it aims to broaden its portfolio of products, all of which are targeted to improve agricultural yields. Nufarm has a growing presence in North America and Europe. Sound sales momentum has been evident in North America and Europe. Several Chinese companies have previously expressed interest in acquiring Nufarm, but withdrew either because of too high a price demanded by the board, or because of reduced availability of debt. In 2010, Japanese company Sumitomo Chemical bought 20% of Nufarm, subsequently increasing its stake to 23% before diluting to 16% and then selling out completely in 2022.

Financial Strengths

Nufarm’s balance sheet is in great shape. In early April 2020, the company received AUD 1.2 billion net sale proceeds from major shareholder Sumitomo, for the sale of its South American crop protection and seed treatment operations in Brazil, Argentina, Colombia, and Chile. This significantly bolstered the finances at a very fortuitous time, coming mid coronavirus. Prior to this in January 2020, group net debt had stood at a whopping AUD 1.6 billion. Nufarm’s under-leveraged balance sheet remains a strength. At Sept. 30, 2022, net debt stood at a modest AUD 204 million excluding leases, leverage of just 9% and annualized net debt/EBITDA of 0.5 is very comfortable. Leverage is well below management’s net debt/EBITDA target range of 1.5 to 2.0. Nufarm is to be unleveraged within a year all else being equal. It would be wise for the company to remain modestly leveraged at most, given vagaries of the weather, earnings seasonality, and new product ramp-up requirements.

Bulls Say

Nufarm benefits from potential strength in soft commodities markets.
Nufarm has well-established distribution platforms in most major global agricultural markets.
Product and geographic diversification helps reduce earnings volatility.

Company Description

Nufarm Limited is a global crop-protection company that develops, manufactures, and sells a range of crop-protection products, including herbicides, insecticides, and fungicides. Nufarm sells its products in most of the world’s major agricultural regions, and operates primarily in the off-patent segment of the crop-protection market. Nufarm operates along two business lines: crop protection and seed technologies.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

Tags Australian Market

Dividend Stocks

Rayonier’s New Zealand business is the firm’s largest timber segment by revenue

Post author By lvc-admin
Post date November 24, 2022
No Comments on Rayonier’s New Zealand business is the firm’s largest timber segment by revenue

Business Strategy & Outlook

Rayonier is the second largest timberland real estate investment trust, or REIT, in North America, managing roughly 1.8 million acres in the southern U.S., 500,000 acres in the Pacific Northwest, and over 400,000 acres in New Zealand. As a REIT, Rayonier distributes its REIT income to shareholders without having to pay corporate level incomes taxes. Cash flow is generated through timber harvesting and the sale of land that it determines has higher value than if it remained in its portfolio. Unlike some of its competitors, Rayonier is a pure-play REIT. The firm generates most of its revenue from the sale of timber and does not produce wood or paper products. While some of its operations are subject to U.S. federal and state income taxes (New Zealand business and log trading), a majority of Rayonier’s income is tax-exempt under its REIT status.

A significant majority of Rayonier’s timberland acreage (70%) is located in the southern region of the U.S., but the firm derives a comparable amount of revenue in each of its regions. In its southern region, roughly two thirds of sales volume are from pulpwood timber, which is used in a variety of pulp and paper products. The remaining one third of volume is higher value sawtimber and serves general construction and homebuilding end markets. Rayonier’s Pacific Northwest timber business sells sawtimber to domestic customers and exports timber to Pacific Rim markets. Homebuilding and general construction are the main end markets for Rayonier’s Pacific Northwest operation. Rayonier’s New Zealand business is the firm’s largest timber segment by revenue. It operates as a joint venture, with Rayonier owning a 77% controlling interest in the subsidiary. The majority of its timberland portfolio in New Zealand is composed of sawtimber that serves the construction end market. Rayonier’s New Zealand operations reduce the firm’s reliance on North American construction as much of its production is exported to China, South Korea, and India.

Financial Strengths

Rayonier has a sound capital structure, and its consistent free cash flow generation should easily support its debt-service requirements and future capital allocation decisions. The firm has historically operated with moderate amounts of leverage. Net debt/adjusted EBITDA dropped below 3.0 times in 2021, but it will return to historical levels as lumber prices retreat from all-time highs and the firm’s EBITDA normalizes. The firm has roughly $1.3 billion in outstanding debt with staggered maturities through 2031, but its next maturity isn’t until 2025 when roughly $24 million is due. Rayonier’s outstanding debt is dwarfed by its substantial timberland portfolio. Its strong asset base should provide the firm with ample access to capital markets should it need to raise additional capital for future acquisitions or capital allocation decisions. Going forward, the firm to continue evaluating timberland acquisitions in the United States and New Zealand that it believes will add value to its timberland portfolio.

Bulls Say

The vast majority of Rayonier’s timberland is located in the southeastern region of the U.S. It is the most popular region for sawmill capacity increases and will provide a strong avenue for timber volume and price growth.
Rayonier’s New Zealand business reduces the firm’s reliance on North American construction markets and will enable the firm to capitalize on rising wood demand in Asia.
Rayonier’s timberland is set to become increasingly valuable as alternative uses for its land in the U.S. become more popular.

Company Description

Rayonier Inc is a real estate investment trust. The company owns and manages timberland. It derives revenue from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate, and Trading. The majority of revenue is earned from the New Zealand timber segment. It owns land in the United States and New Zealand.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

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Global stocks Shares

GrainCorp has historically handled up to 60% of the east-coast grain crop and 30% of the country’s total grain exports

Post author By lvc-admin
Post date November 24, 2022
No Comments on GrainCorp has historically handled up to 60% of the east-coast grain crop and 30% of the country’s total grain exports

Business Strategy & Outlook

GrainCorp enjoys significant market shares in grain storage, handling, and port elevation services along the eastern seaboard of Australia. Earnings are heavily affected by seasonal conditions, but the diversification into oilseed crushing and refining reduces earnings volatility and provides growth opportunities. However, the firm hasn’t carved an economic moat, and forecast returns on invested capital to trail the firm’s cost of capital over the long term. GrainCorp’s core Australian grain storage and logistics business is heavily reliant on favorable weather patterns. Accordingly, it has had some strong years during bumper grain harvests, but with a high fixed-cost base, even after substantial asset reduction, earnings can quickly evaporate in poor seasons. While the company’s upcountry storage network would be difficult to replicate from scratch, on-farm storage is a competitive threat, particularly in drought years when a larger share of the crop moves direct from farm to customer, bypassing GrainCorp’s storage network. Port competition has also increased in recent years, and regulation remains high. In a bumper harvest year, GrainCorp has historically handled up to 60% of the east-coast grain crop and 30% of the country’s total grain exports, but in a poor year, these market shares can trend closer to 30% and below 5%, respectively. GrainCorp’s market share of the eastern grain crop stabilized at levels near 40% over time, and export share above 20%, representing an average crop year.

Beyond storage and logistics, the grain marketing segment competes domestically and internationally against other major commodities trading houses such as Cargill and Glencore. This is a competitive market, and GrainCorp isn’t having any advantage relative to these large global players. The firm will likely remain at the mercy of Australian grain competitiveness relative to global pricing. Similarly, GrainCorp’s oil crushing and refining business remains competitive. Profitability is expected in this segment to improve due to cost-savings measures and ongoing growth, the segment doesn’t enjoys durable competitive advantages.

Financial Strengths

GrainCorp’s capital structure is reasonable. It comprises debt and equity, with noncore debt associated with the funding of grain marketing inventory. As a result of swings in crop prices, GrainCorp’s cash flow and working capital requirements can be volatile, so the company will need to draw down on debt on demand. As at Sept. 30, 2022, core debt (net debt less commodity inventory) was cash-positive and total net debt was AUD 540 million. There’s a risk that earnings pressure in drought-affected years could test debt covenants with its bank lenders. The primary metrics are its net debt/capital gearing ratio and EBITDA/interest ratio. Gearing ratios can be volatile, given the swings in inventory levels. The net debt gearing ratio (net debt/net debt plus equity) sat at over 27% as at Sept. 30, 2022 due to high inventory levels. Accordingly, core debt gearing (core debt/core debt plus equity) was negligible. Management doesn’t disclose the minimum EBITDA/interest ratio. In fiscal 2020, this ratio was about 4 times on an adjusted basis, but improved to 13 times and 20 times in fiscal 2021 and 2022, respectively.

Bulls Say

With strategic processing, storage, and transportation assets, GrainCorp’s size gives the company scale advantages over regional competitors.
Global thematic, such as increased food demand, particularly in Asia, should benefit agribusinesses such as GrainCorp.
Despite divesting the malt business, GrainCorp has entered into a new grains derivative contract which assists with smoothing out earnings through the cycle.

Company Description

GrainCorp is an agribusiness with an integrated business model operating across three divisions. The company operates the largest grain storage and logistics network in eastern Australia. GrainCorp

provides grain marketing services to all major grain-producing regions in Australia, as well as to

Canadian and U.K. growers. The company has also diversified into edible oil refining and supply, and bulk liquid storage.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

Tags Australian Market

Global stocks Shares

Nufarm’s primary competitive strengths are marketing scale, dominant position in the Australian market, formulation expertise, and marketing skills

Business Strategy & Outlook

Financial Strengths

Bulls Say

Nufarm benefits from potential strength in soft commodities markets.
Nufarm has well-established distribution platforms in most major global agricultural markets.
Product and geographic diversification helps reduce earnings volatility.

Company Description

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

Tags Australian Market

Technology Stocks

Vitesco has been winning large amounts of new business due to the industry’s transition to electrified powertrains

Post author By lvc-admin
Post date November 23, 2022
No Comments on Vitesco has been winning large amounts of new business due to the industry’s transition to electrified powertrains

Business Strategy & Outlook

Vitesco will capitalize on vehicle electrification arising from global clean air regulation. Vitesco’s products are used in internal combustion engines, hybrid electric, battery electric, and fuel cell electric vehicles. The company’s electrified vehicle powertrain product lines should support revenue growth in the mid-single-digit range, despite non core ICE product lines which are declining. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. Vitesco has been winning large amounts of new business due to the industry’s transition to electrified powertrains. While 2021 electrification sales amounted to EUR 888 million (from more than one operating segment) out of the consolidated total of EUR 8.3 billion, 2021 electrification order intake was EUR 5.1 billion. Vitesco has a cumulative EUR 16.8 billion electrification order intake backlog (EUR 51 billion total order intake backlog). Once an order is taken, development for a vehicle powertrain takes two to four years, during which Vitesco incurs development costs without any associated revenues. The production phase, when revenue is generated, lasts between five-10 years.

Vitesco’s large number of new contracts in development phase, relative to the low number in production, leads to net losses through 2024 and break even in 2025 for the electrification technology operating segment. The segment’s 2025 revenue is EUR 1.95 billion, up from EUR 587 million in 2021. Vitesco to wind down contract manufacturing for its former parent, Continental AG, with revenue dropping from EUR 1.05 billion in 2021 to zero in 2028. Noncore ICE revenue to decline from about EUR 2.0 billion in 2020 to EUR 665 million in 2031. Because of high growth electrified powertrain business, from a 2019 base, 4% average annual consolidated revenue growth during the 10-year, roughly 1-3 percentage points higher than expectations for 1%-3% long-term growth in global light vehicle demand.

Financial Strengths

Vitesco maintains a solid balance sheet and liquidity that, relative to other parts suppliers, makes for strong financial health. Vitesco has ample liquidity and can generate sufficient free cash flow to meet its current financial obligations and weather cyclical downturns. The firm maintains a low level of debt as its net debt / total capital was negative 7.6% (indicating a net cash position) at the end of 2021. The firm has two multicurrency revolving credit facilities including a EUR 750 million core credit facility and an incremental EUR 250 million credit facility. At the end of 2021, Vitesco had EUR 1,614 million in liquidity, including available credit facilities and a EUR 614 million cash balance. Short-term debt was EUR 69.8 million and long-term debt was EUR 199.1 million for a total debt balance of EUR 268.9 million. Vitesco ended 2021 with a 0.3 net adjusted debt/ EBITDAR ratio which takes into consideration cash, operating leases, and rent expense

Bulls Say

Global clean air legislation enables Vitesco’s top-line growth to exceed worldwide growth in demand for light vehicles.
The firm’s global manufacturing footprint enables the firm to participate in global vehicle programs and capitalize on global demand.
As automakers consolidate purchases with fewer suppliers, large firms such as Vitesco are in the best position to gain share because they can offer a wide range of products at attractive prices.

Company Description

Vitesco is a global Tier I automotive supplier of internal combustion engine (ICE), hybrid electric (HEV), battery electric (BEV), and fuel cell electric (FCEV) vehicle powertrain components and systems, operating through four segments including electronic controls, sensing & actuation, electrification technology, and contract manufacturing. The company was spun off from Continental AG on Sept. 16, 2021. ICE powertrain products include electronic controls, sensors, actuators, turbochargers, hydraulic components, pumps, and emissions technologies. HEV, BEV, and FCEV products include battery management systems, onboard chargers, battery junction boxes, emotors, inverters, converters, thermal control, electronic control units, pumps, flow control valves, sensors, and actuators.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

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Global stocks Shares

With the bank’s acquisition of MB Financial, Fifth Third’s share has improved substantially in the Chicago area

Post author By lvc-admin
Post date November 23, 2022
No Comments on With the bank’s acquisition of MB Financial, Fifth Third’s share has improved substantially in the Chicago area

Business Strategy & Outlook

Fifth Third’s reputation as a solidly profitable bank took a hit during the financial crisis. The bank regularly reported returns on equity that exceeded 17% before 2007, largely because of a strong line of fee-income businesses. In 2007, primarily because of weakness in some of the bank’s most significant markets–Ohio, Michigan, and Florida–loan losses began to pile up. Although management could not avoid the impact of operating in hard-hit economies, a generally increasing appetite for risk compounded the bank’s problems. Over the course of 2008-09, loan-loss provisions ate up more than 100% of net interest income. Since the crisis, much has changed, and management has made improvements to the underwriting process and generally improved the bank’s risk management. Fifth Third has emerged from the crisis as one of the Midwest’s more stable banking franchises, with strong deposit share across several large cities in Ohio and Michigan. With the bank’s acquisition of MB Financial, Fifth Third’s share has improved substantially in the Chicago area.

The bank is also entering a new stage of better cost controls, which when combined with coming rate hikes, should set up the bank for solid operating leverage for years to come and a consistent sub-60% efficiency ratio. These are all necessary moves as the bank figures out how to buoy returns in a post-Worldpay existence. Better card analytics, increased capital markets and M&A offerings, and bolt-on acquisitions should continue to help drive growth in revenues. Fifth Third has experimented with partnerships with financial technology firms, such as GreenSky, the bank has bolstered its investment banking franchise with bolt-on acquisitions, and the bank’s latest acquisition of Dividend Finance should produce steady loan growth for years. The bank has performed from a credit perspective this time around, much better than during the financial crisis. Overall, Fifth Third is a dependable Midwest operator with improved risk management, decent market share in key geographies, and particular strength among its core middle-market clients.

Financial Strengths

Since the financial crisis, Fifth Third had steadily built its capital base to what is considered a healthy level. The bank reported a common equity Tier 1 ratio of 9.1% as of September 2022, in line with management’s target of roughly 9%. Fifth Third is adequately capitalized to withstand future losses while also funding growth.

Bulls Say

A strong economy and higher rates are all positives for the banking sector and should propel revenue and profitability even higher for Fifth Third.
Fifth Third’s latest acquisition of Dividend Finance should drive outsized and profitable loan growth for years to come.
Fifth Third may still have additional cost savings waiting in the background, potentially allowing the bank to outperform peers in an otherwise inflationary expense environment.

Company Description

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati. The company has over $200 billion in assets and operates numerous full-service banking centers and ATMs throughout Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, and North Carolina.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

Tags US Market

Technology Stocks

The linchpin of Nvidia’s business has been gaming

Post author By lvc-admin
Post date November 23, 2022
No Comments on The linchpin of Nvidia’s business has been gaming

Business Strategy & Outlook

Nvidia is the top designer of discrete graphics processing units that enhance the visual experience on computing platforms. The firm’s chips are used in a variety of end markets, including high-end PCs for gaming and data centers. Traditional GPU uses include professional visualization applications that require realistic rendering, including computer-aided design, video editing, and special effects. Nvidia has experienced success in focusing its GPUs in nascent markets such as artificial intelligence (deep learning) and self-driving vehicles. Hyperscale cloud vendors have leveraged GPUs in training neural networks for uses such as image and speech recognition. The linchpin of Nvidia’s business has been gaming. PC gaming enthusiasts generally purchase high-end discrete GPUs offered by the likes of Nvidia and AMD. Going forward, the data center segment will drive most of the firm’s growth, led by the explosive artificial intelligence phenomenon. This involves collecting large swaths of data followed by techniques that develop algorithms to produce conclusions in the same way as humans. As Moore’s law-led CPU performance improvements have slowed, GPUs have become widespread in accelerating the training of AI models to perform a task. However, other solutions are more suitable for inferencing, which is the deployment of a trained model on new data.

Today’s basic variants of AI are consumer-oriented and include digital assistants, image recognition, natural language processing, and recommendation engines. The firm views the car as a “supercomputer on wheels.” Although this segment currently contributes relatively little to the top line, the opportunity Nvidia has to grow its presence in cars beyond infotainment as drivers seek autonomous features in newer vehicles is acknowledgeable. Nvidia’s Drive PX platform is a deep learning tool for self-driving that is being used in R&D at more than 370 partners. In 2020, Nvidia acquired Mellanox to bolster its data center offerings in the networking realm to raise switching costs and improve performance of Nvidia’s existing portfolio.

Financial Strengths

Nvidia is in strong financial shape. The firm had about $13.1 billion in cash, cash equivalents, and marketable securities, versus total debt of about $11 billion on its balance sheet at the end of October 2022. Semiconductor firms tend to hold large cash balances to help them navigate the cycles of the chip industry. During downturns, this provides them with a cushion and flexibility to continue investing in research and development, which is necessary to maintain their competitive and technology positions. Nvidia’s dividend is very reasonable relative to its financial health and forward prospects, and the firm also returns excess cash to shareholders via stock buybacks.

Bulls Say

The proliferation of the artificial intelligence and deep learning phenomena that rely on Nvidia’s graphics chips presents the firm with a potentially massive growth opportunity.
The firm has a first-mover advantage in the autonomous driving market that could lead to widespread adoption of its Drive PX self-driving platform.
The increasing complexity of graphics processors provides a barrier to entry for most potential rivals, as it would be difficult to match Nvidia’s large R&D budget.

Company Description

Nvidia is the top designer of discrete graphics processing units that enhance the experience on computing platforms. The firm’s chips are used in a variety of end markets, including high-end PCs for gaming, data centers, and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm’s products.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

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Dividend Stocks

Hanes has plans to improve Champion’s footwear after recently taking control of the product

Post author By lvc-admin
Post date November 22, 2022
No Comments on Hanes has plans to improve Champion’s footwear after recently taking control of the product

Business Strategy & Outlook

Narrow-moat Hanesbrands is the market leader in basic innerwear (60% of its 2021 sales) in multiple countries. Its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, the strong U.S. dollar, lower inventory levels at retailers, and COVID-19, Hanes’ share leadership in replenishment apparel categories puts it in better shape than some competitors. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced ecommerce, for example), and streamline its portfolio.

As part of Full Potential, Hanes intends to build on Champion’s popularity in North America, Asia, and Europe. Although recent results have been rocky, Champion has expansion opportunities as it and other activewear apparel have become more than just athletic apparel and are increasingly worn as lifestyle/fashion brands. Moreover, Hanes has plans to improve Champion’s footwear after recently taking control of the product. Hanes’ management forecasts Champion will reach $3.2 billion in global sales in 2024, up from more than $2 billion last year, but the macroeconomic and industry challenges have probably put this goal out of reach by this time frame. Another key strategy for Hanes is to improve the efficiency of its supply chain. It has already made progress in this area, having achieved a 15% increase in manufacturing output over the past four years. Hanes, unlike many rivals, primarily operates its own manufacturing facilities. More than 70% of the more than 2 billion apparel units sold by the company each year are manufactured in its own plants or those of dedicated contractors.

Financial Strengths

Hanes racked up considerable amounts of debt during its acquisition spree in 2013-18. Its balance sheet was improving prior to the pandemic, but has lately become a concern as its free cash flow has turned negative in 2022. Hanes closed 2022’s third quarter with about $3.9 billion in debt, but it also had $253 million in cash and $560 million available under its revolving credit facility. Despite recent challenges, Hanes will have significant cash available for debt reduction over the next few years, forecasting its total debt to drop to $1.9 billion by the end of 2026. The firm is to meet its goal of bringing debt/EBITDA (3.7 times at the end of 2021) below 3 times by 2026. Although Hanes suspended its share buybacks due to the pandemic, repurchases have resumed in a small way in 2022. The company bought back significant amounts of stock in 2016 and 2017 and repurchased $200 million in shares in early 2020 before the virus spread. It will repurchase about $200 million in shares per year over the next decade. Hanes, unlike many peers, did not suspend its dividend due to the virus. Its annual dividend has been set at $0.60 per share since 2017, but it will be increased in future years as debt is retired. Its annual dividend payout ratio will be around 40% in the long term. Hanes may expand the business through acquisitions, although it has not made a major acquisition since 2018. No acquisitions would be there due to uncertainty about timing, size, and profitability. At this point, internal investments and debt retirement are higher priorities than acquisitions.

Bulls Say

Hanes’ Champion is a contender in the hot but crowded athleisure space. The brand is already well known in North America and parts of Europe, and there is significant potential in China and other underpenetrated markets.
Hanesbrands has successfully introduced brand extensions that have allowed it to expand shelf space and increase price points in the typically staid category of basic apparel.
After a review, Hanesbrands announced a new strategic plan called Full Potential to boost growth and reduce expenses, which should benefit its brand strength.

Company Description

Hanesbrands manufactures basic and athletic apparel under brands including Hanes, Champion, Playtex, Maidenform, Bali, and Bonds. The company sells wholesale to discount, midmarket, and department store retailers as well as direct to consumers. Hanesbrands is vertically integrated as it produces more than 70% of its products in company-controlled factories in more than three dozen nations. Hanesbrands distributes products in the Americas, Europe, and Asia-Pacific. The company was founded in 1901 and is based in Winston-Salem, North Carolina.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

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As more and more retail transactions go through digital channels and commercial margins improve in PNC’s newer markets

Post author By lvc-admin
Post date November 22, 2022
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Business Strategy & Outlook

PNC has transformed itself since the financial crisis, with the integration of the troubled National City (doubling the size of PNC), the acquisition of RBC’s U.S. branch network in the Southeast, and the acquisition of BBVA USA (a roughly 25% increase in size). PNC is now the second largest regional bank in the United States. PNC has been successful at organically expanding its customer base, both in commercial banking and in retail. The expanding client base has led to solid loan, deposit, and fee income growth. Selling new products into the formerly underperforming RBC branch network has worked, and PNC now seems poised to repeat this effort with the acquisition of BBVA. The bank’s Midwest commercial growth strategy is paying dividends, and PNC is now attempting retail growth efforts in the same areas where commercial expansion was successful as well as commercial optimization within the BBVA footprint.

The successful acquisition history, seemingly successful expansion initiatives, and improved credit performance during the 2007 downturn lead to believe that PNC is one of the better operators. Overall, the bank is a solid regional banking franchise, with a national presence and scale, retail and commercial offerings, a successful asset management unit, and solid middle market investment banking operations with its Harris Williams unit. PNC has executed on many expense-saving initiatives over the years, and management has been actively reinvesting many of these savings back in the business to stay ahead on the technology front, with multiple bolt on acquisitions already completed and more likely to occur in the future. As more and more retail transactions go through digital channels and commercial margins improve in PNC’s newer markets, improving operating efficiency for the bank.

Financial Strengths

PNC is in good financial health. The bank has weathered multiple energy downturns, the financial crisis, and the pandemic well. Most measures of credit strain remain quite manageable, and the bank’s history of prudent lending gives comfort with the risks here. PNC’s common equity Tier 1 ratio of 9.3% as of September 2022 is more than adequate. The capital-allocation plan remains fairly standard for PNC, although the bank does plan to target a higher dividend payout ratio of closer to 40% or more over time. Otherwise, there is a preference to use extra profits to improve the competitive positioning of the bank through internal investment, with the left overs used for share repurchases.

Bulls Say

PNC’s acquisition of BBVA seems likely to add value to the franchise and for shareholders, and will make PNC one of the regional banks with the most scale, and could drive above-market fee growth for several years.
A strong economy and higher rates are all positives for the banking sector and should propel results even higher. This is unique for banks, as many sectors don’t benefit from higher rates.
In addition to acquisitions, PNC has organic expansion opportunities it is taking advantage of, which could lead to higher organic growth than peers over time.

Company Description

PNC Financial Services Group is a diversified financial services company offering retail banking, corporate and institutional banking, asset management, and residential mortgage banking across the United States.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

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