The Ratings Game: Gildan shares closed down 25% after a profit warning but one analyst says it’s just a ‘one-off weakness’

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Gildan was downgraded at Stifel after the profit warning

Gildan Activewear Inc. stock plummeted 25.7% in Friday trading after the apparel company issued a profit warning and cut its guidance, but CFRA’s Camilla Yanushevsky says investors aren’t seeing the full picture.

It was the biggest percentage decline since December 2011.

“While the sharp cut comes to us as a surprise, considering the company reaffirmed ‘19 sales guide and upwardly revised its full-year earnings per share following Q2 results, we think today’s selloff is an overreaction to a one-off weakness in imprintables,” she wrote.

Gildan GIL, -25.86%   makes T-shirts, sweatshirts, and other athletic apparel.

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Gildan said it expects to report earnings per share of 51 cents for the third quarter and adjusted EPS of 53 cents, both down 7% year-over-year. And sales are expected to be $740 million, 2% lower than 2018. EPS was expected to be flat and sales were expected to grow in the mid-single-digit range.

“In our view, the market is under appreciating Gildan’s ‘growing while transforming’ phase, Yanushevsky said. “Gildan is among the first to start tightening branded assortments and capitalize on the growing appeal of private labels. Gildan noted that the channel performed essentially in line with expectations and we see expansion of shelf space in Q4 and new product lines in 2020 yielding long term financial benefits.”

CFRA maintained its strong buy stock opinion, but lowered its 12-month target to C$50 from C$40.

Stifel analysts are more in line with investors, downgrading the stock to hold from buy and cutting their price target to $30 from $44.

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“The magnitude of the Q3 shortfall and fiscal year 2019 guidance is striking, particularly given that the outlook was reaffirmed August 2,” analysts wrote.

“While appreciative of best-in-class infrastructure, evidence of category issues challenge the case for revenue growth and the associated rate of margin expansion and earnings improvement.”

Gildan will report its third-quarter results on Oct. 30. The stock is down 10.6% for the year to date while the S&P 500 index SPX, -0.39%   is up 19.3% for the period.