Hanesbrands activist focus on debt makes sense, says Wedbush

Hanesbrands shares are rallying due to news that activist investor Barington Capital has taken a stake in the company and sent a letter to the board pushing for change, Wedbush the analyst tells investors in a research note. The activist’s suggestions include: a cost-cutting initiative, reducing inventory levels, utilizing cash savings to pay down debt, improve gross margins by consolidating the factory base and if necessary, alter the composition of the board and/or replace CEO Steve Bratspies, the firm notes. Wedbush believed debt reduction is a key focus of Barington’s vision, which it thinks “makes perfect sense” given Hanesbrands’ highly-levered balance sheet. It says Barrington’s involvement may spur changes that could be both earnings-accretive and valuation-accretive. The firm has a Neutral rating on Hanesbrands with a $5.50 price target.