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Gildan Activewear's Underperformance Does Not Deter the Bulls

GIL gapped lower yesterday on weak fiscal forecast

by 12/2/2011 3:10:30 PM
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Shares of Gildan Activewear Inc. (GIL - 16.71) started off the day on a sour note, having tagged an annual low of $16.32 in early trading, but have since managed to muscle their way to a gain of 2%. This is quite the change of pace from yesterday's session, where the stock gapped significantly lower as the company said its fiscal fourth-quarter profit fell by 15%. In addition, GIL predicted a first-quarter loss, and downwardly revised its 2012 full-year adjusted earnings to $1.30 per share, compared to last year's earnings of $2.01 per share.

As a result, GIL attracted attention from the brokerage bunch bright and early this morning. CIBC started things off, cutting its price target to $26 from $38; Raymond James moved its target to $22; Stonecap slashed its forecast to C$29 from C$44; RBC adjusted its target to $30 from $36; TD Securities dropped its price target to C$25 from C$36; National Bank brought down its price target by C$6 to C$32; and, finally, Paradigm lowered its rating on GIL to "hold" from "buy."

The rush to cut the stock's price target is understandable, given GIL's bleak fiscal forecast. It is the bullish attention the stock was garnering leading up to the announcement that is a bit puzzling. For starters, Zacks reports that 11 out of 15 analysts maintain a "buy" or better rating toward the stock, with not a single "sell" to be found. What's more, the consensus 12-month price target -- as calculated by Thomson Reuters -- of $35.14 represents a significant 115% premium to Thursday's closing price of $16.36.

Echoing this optimism is the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.32, which ranks in the 35th percentile of its annual range. In other words, near-term traders are more bullishly aligned than usual toward GIL.

What makes GIL's sentiment backdrop so surprising, is that the stock has had a terrible run on the charts in 2011. In fact, the security is sitting on a 42.5% year-to-date deficit. Also, over the course of the past 60 trading sessions, GIL has lagged the broader S&P 500 Index (SPX) by over 41 percentage points, on a relative-strength basis.

GIL price chart

While the stock is up today, GIL may simply be following the broad-market indexes higher, as well as recovering a bit after Thursday's sell-off. With steep technical hurdles to overcome, the stock may be in a position to fall even further should the remaining bullish analysts and option players begin to jump ship.


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