What happened
Hanesbrands(NYSE: HBI) stock is sinking again this week. The company's share price was down 14.1% from last week's market close heading into this Friday's trading, according to data from S&P Global Market Intelligence.
Hanesbrands is losing ground in the face of macroeconomic risk factors and the possibility of a major restructuring at the company. Following pressure from activist investor Burlington Capital Group, Hanesbrands submitted a filing to the Securities and Exchange Commission last week that seemed to confirm that it was exploring a possible sale of its Champion business unit.
So what
Champion had been a bright spot at Hanesbrands for much of the last decade. The brand enjoyed a huge resurgence in conjunction with the athleisure trend and played a big role in elevating the clothing and apparel company's overall business performance, but its popularity is waning again.
Burlington Capital has been pushing for Hanesbrands to dramatically reduce its debt, and it could get its way by encouraging the sale of Champion. It's possible that such a move would ultimately benefit shareholders, but investors seem to have cooled on the prospect of selling Champion this week.
In addition to uncertainty about potentially selling off a major business unit, Hanesbrands is also facing macroeconomic risks. With a market capitalization of roughly $1.3 billion, Hanesbrands has roughly $3.5 billion in long-term debt on its books -- and high interest rates are adding to its expenses.
Following the decision to keep rates flat at the 5.25% to 5.5% range earlier this month, some Fed officials and economic forecasters made comments this week suggesting that they believe the central banking authority will need to push rates higher and keep them that way for longer than many are anticipating. While inflation has slowed in recent months, it remains significantly above the 2% annual benchmark rate that the Fed is targeting.
Now what
On the heels of its recent slide, Hanesbrands stock is now down roughly 52% over the last year.
HBI PS Ratio (Forward) data by YCharts
Trading at less than 22% of this year's expected sales and 17 times expected forward earnings even after big profit declines, Hanesbrands might look like a potential value play. But the company's business is clearly headed in the wrong direction.
While selling off Champion could help pay down debt and potentially get the business on a better path, Hanesbrands' other core units are either seeing declining sales or very low growth. The beaten-down stock could have upside potential at current prices, but investors may want to wait until some evidence of a viable turnaround strategy emerges.
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Keith Noonan has positions in Hanesbrands. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
