Intrinsic value of Gildan Activewear Inc. - GIL

Previous Close

$37.92

  Intrinsic Value

$5.73

stock screener

  Rating & Target

str. sell

-85%

  Value-price divergence*

0%

Previous close

$37.92

 
Intrinsic value

$5.73

 
Up/down potential

-85%

 
Rating

str. sell

 
Value-price divergence*

0%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of GIL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 8.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -12.63
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  3,493
  3,629
  3,775
  3,930
  4,095
  4,270
  4,456
  4,653
  4,861
  5,081
  5,313
  5,558
  5,817
  6,090
  6,377
  6,680
  6,999
  7,335
  7,688
  8,060
  8,451
  8,862
  9,294
  9,749
  10,227
  10,729
  11,257
  11,812
  12,395
  13,008
  13,652
Variable operating expenses, $m
 
  3,225
  3,354
  3,490
  3,636
  3,790
  3,954
  4,127
  4,310
  4,504
  4,709
  4,898
  5,126
  5,366
  5,620
  5,886
  6,167
  6,463
  6,775
  7,102
  7,447
  7,809
  8,190
  8,591
  9,012
  9,455
  9,920
  10,409
  10,923
  11,462
  12,030
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,991
  3,225
  3,354
  3,490
  3,636
  3,790
  3,954
  4,127
  4,310
  4,504
  4,709
  4,898
  5,126
  5,366
  5,620
  5,886
  6,167
  6,463
  6,775
  7,102
  7,447
  7,809
  8,190
  8,591
  9,012
  9,455
  9,920
  10,409
  10,923
  11,462
  12,030
Operating income, $m
  502
  404
  421
  440
  459
  480
  502
  525
  550
  576
  604
  660
  691
  724
  758
  794
  832
  871
  913
  958
  1,004
  1,053
  1,104
  1,158
  1,215
  1,275
  1,338
  1,403
  1,473
  1,546
  1,622
EBITDA, $m
  692
  604
  629
  654
  682
  711
  742
  775
  809
  846
  885
  926
  969
  1,014
  1,062
  1,112
  1,166
  1,221
  1,280
  1,342
  1,407
  1,476
  1,548
  1,624
  1,703
  1,787
  1,875
  1,967
  2,064
  2,166
  2,273
Interest expense (income), $m
  14
  28
  30
  32
  34
  35
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  70
  74
  78
  82
  87
  92
  97
  102
  108
  114
  120
  126
  133
  141
Earnings before tax, $m
  475
  376
  391
  408
  426
  445
  465
  486
  508
  532
  557
  611
  638
  668
  699
  731
  766
  802
  840
  880
  922
  966
  1,013
  1,062
  1,113
  1,167
  1,224
  1,284
  1,346
  1,412
  1,481
Tax expense, $m
  7
  101
  106
  110
  115
  120
  125
  131
  137
  144
  150
  165
  172
  180
  189
  197
  207
  216
  227
  238
  249
  261
  273
  287
  301
  315
  330
  347
  364
  381
  400
Net income, $m
  468
  274
  286
  298
  311
  325
  339
  355
  371
  388
  407
  446
  466
  487
  510
  534
  559
  585
  613
  642
  673
  705
  739
  775
  812
  852
  893
  937
  983
  1,031
  1,081

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  52
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  4,040
  4,143
  4,309
  4,486
  4,674
  4,874
  5,087
  5,311
  5,549
  5,800
  6,065
  6,345
  6,641
  6,952
  7,280
  7,626
  7,990
  8,373
  8,776
  9,201
  9,647
  10,116
  10,610
  11,129
  11,675
  12,248
  12,851
  13,484
  14,150
  14,849
  15,584
Adjusted assets (=assets-cash), $m
  3,988
  4,143
  4,309
  4,486
  4,674
  4,874
  5,087
  5,311
  5,549
  5,800
  6,065
  6,345
  6,641
  6,952
  7,280
  7,626
  7,990
  8,373
  8,776
  9,201
  9,647
  10,116
  10,610
  11,129
  11,675
  12,248
  12,851
  13,484
  14,150
  14,849
  15,584
Revenue / Adjusted assets
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
  0.876
Average production assets, $m
  1,900
  1,974
  2,053
  2,138
  2,228
  2,323
  2,424
  2,531
  2,644
  2,764
  2,890
  3,024
  3,165
  3,313
  3,469
  3,634
  3,807
  3,990
  4,182
  4,384
  4,597
  4,821
  5,056
  5,303
  5,563
  5,837
  6,124
  6,426
  6,743
  7,076
  7,426
Working capital, $m
  1,492
  1,495
  1,555
  1,619
  1,687
  1,759
  1,836
  1,917
  2,003
  2,093
  2,189
  2,290
  2,397
  2,509
  2,627
  2,752
  2,884
  3,022
  3,167
  3,321
  3,482
  3,651
  3,829
  4,017
  4,214
  4,421
  4,638
  4,867
  5,107
  5,359
  5,624
Total debt, $m
  811
  857
  906
  958
  1,014
  1,073
  1,136
  1,202
  1,272
  1,346
  1,424
  1,507
  1,594
  1,686
  1,783
  1,885
  1,992
  2,105
  2,224
  2,349
  2,481
  2,619
  2,765
  2,918
  3,079
  3,248
  3,426
  3,613
  3,809
  4,016
  4,232
Total liabilities, $m
  1,176
  1,222
  1,271
  1,323
  1,379
  1,438
  1,501
  1,567
  1,637
  1,711
  1,789
  1,872
  1,959
  2,051
  2,148
  2,250
  2,357
  2,470
  2,589
  2,714
  2,846
  2,984
  3,130
  3,283
  3,444
  3,613
  3,791
  3,978
  4,174
  4,381
  4,597
Total equity, $m
  2,864
  2,921
  3,038
  3,163
  3,296
  3,436
  3,586
  3,744
  3,912
  4,089
  4,276
  4,473
  4,682
  4,901
  5,132
  5,376
  5,633
  5,903
  6,187
  6,486
  6,801
  7,132
  7,480
  7,846
  8,231
  8,635
  9,060
  9,506
  9,976
  10,469
  10,987
Total liabilities and equity, $m
  4,040
  4,143
  4,309
  4,486
  4,675
  4,874
  5,087
  5,311
  5,549
  5,800
  6,065
  6,345
  6,641
  6,952
  7,280
  7,626
  7,990
  8,373
  8,776
  9,200
  9,647
  10,116
  10,610
  11,129
  11,675
  12,248
  12,851
  13,484
  14,150
  14,850
  15,584
Debt-to-equity ratio
  0.283
  0.290
  0.300
  0.300
  0.310
  0.310
  0.320
  0.320
  0.330
  0.330
  0.330
  0.340
  0.340
  0.340
  0.350
  0.350
  0.350
  0.360
  0.360
  0.360
  0.360
  0.370
  0.370
  0.370
  0.370
  0.380
  0.380
  0.380
  0.380
  0.380
  0.390
Adjusted equity ratio
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  468
  274
  286
  298
  311
  325
  339
  355
  371
  388
  407
  446
  466
  487
  510
  534
  559
  585
  613
  642
  673
  705
  739
  775
  812
  852
  893
  937
  983
  1,031
  1,081
Depreciation, amort., depletion, $m
  190
  200
  207
  215
  223
  231
  240
  249
  259
  270
  281
  265
  278
  291
  304
  319
  334
  350
  367
  385
  403
  423
  444
  465
  488
  512
  537
  564
  591
  621
  651
Funds from operations, $m
  771
  475
  493
  513
  533
  556
  579
  604
  630
  658
  687
  711
  744
  778
  814
  853
  893
  935
  980
  1,027
  1,076
  1,128
  1,183
  1,240
  1,301
  1,364
  1,431
  1,501
  1,574
  1,652
  1,733
Change in working capital, $m
  44
  56
  60
  64
  68
  72
  77
  81
  86
  91
  96
  101
  107
  112
  118
  125
  131
  138
  146
  153
  161
  169
  178
  187
  197
  207
  218
  229
  240
  252
  265
Cash from operations, $m
  727
  418
  433
  449
  465
  483
  503
  523
  544
  567
  592
  610
  637
  666
  696
  728
  762
  797
  834
  874
  915
  959
  1,005
  1,053
  1,104
  1,157
  1,213
  1,272
  1,334
  1,399
  1,468
Maintenance CAPEX, $m
  0
  -167
  -173
  -180
  -188
  -195
  -204
  -213
  -222
  -232
  -242
  -254
  -265
  -278
  -291
  -304
  -319
  -334
  -350
  -367
  -385
  -403
  -423
  -444
  -465
  -488
  -512
  -537
  -564
  -591
  -621
New CAPEX, $m
  -189
  -74
  -79
  -84
  -90
  -95
  -101
  -107
  -113
  -120
  -126
  -133
  -141
  -148
  -156
  -165
  -173
  -183
  -192
  -202
  -213
  -224
  -235
  -247
  -260
  -273
  -287
  -302
  -317
  -333
  -350
Cash from investing activities, $m
  -410
  -241
  -252
  -264
  -278
  -290
  -305
  -320
  -335
  -352
  -368
  -387
  -406
  -426
  -447
  -469
  -492
  -517
  -542
  -569
  -598
  -627
  -658
  -691
  -725
  -761
  -799
  -839
  -881
  -924
  -971
Free cash flow, $m
  317
  178
  181
  184
  188
  193
  198
  203
  209
  216
  223
  223
  231
  240
  249
  259
  269
  280
  292
  305
  318
  332
  346
  362
  378
  396
  414
  433
  453
  474
  497
Issuance/(repayment) of debt, $m
  -101
  46
  49
  52
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
  107
  113
  119
  125
  132
  138
  146
  153
  161
  169
  178
  187
  196
  206
  217
Issuance/(repurchase) of shares, $m
  -530
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -233
  46
  49
  52
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
  107
  113
  119
  125
  132
  138
  146
  153
  161
  169
  178
  187
  196
  206
  217
Total cash flow (excl. dividends), $m
  83
  224
  230
  236
  244
  252
  260
  269
  279
  290
  301
  306
  318
  332
  346
  361
  377
  393
  411
  430
  449
  470
  492
  515
  539
  565
  592
  620
  650
  681
  714
Retained Cash Flow (-), $m
  93
  -109
  -117
  -125
  -133
  -141
  -150
  -158
  -168
  -177
  -187
  -197
  -208
  -220
  -231
  -244
  -257
  -270
  -284
  -299
  -315
  -331
  -348
  -366
  -385
  -404
  -425
  -447
  -469
  -493
  -518
Prev. year cash balance distribution, $m
 
  52
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  167
  113
  112
  111
  111
  111
  111
  112
  113
  114
  108
  110
  112
  114
  117
  120
  123
  127
  131
  135
  139
  144
  149
  155
  161
  167
  173
  180
  188
  196
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  160
  103
  97
  91
  86
  80
  75
  70
  65
  60
  51
  47
  43
  38
  34
  31
  27
  23
  20
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Gildan Activewear Inc. is a manufacturer and marketer of branded basic family apparel, including T-shirts, fleece, sport shirts, underwear, socks, hosiery and shapewear. The Company operates through two segments: Printwear and Branded Apparel. The Printwear segment designs, manufactures, sources, markets, and distributes undecorated activewear products. The Branded Apparel segment designs, manufactures, sources, markets, and distributes branded family apparel, which includes athletic, casual and dress socks, underwear, activewear, sheer hosiery, legwear, and shapewear products, which are sold to retailers in the United States and Canada. The Company sells its products under various brands, including the Gildan, Gold Toe, Anvil, Comfort Colors, American Apparel, Alstyle, Secret, Silks, Kushyfoot, Secret Silky, Therapy Plus, Peds, and MediPeds brands. The Company distributes its products in printwear markets in the United States, Canada, Mexico, Europe, Asia-Pacific and Latin America.

FINANCIAL RATIOS  of  Gildan Activewear Inc. (GIL)

Valuation Ratios
P/E Ratio 18.7
Price to Sales 2.5
Price to Book 3
Price to Tangible Book
Price to Cash Flow 12
Price to Free Cash Flow 16.2
Growth Rates
Sales Growth Rate -12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -57.2%
Cap. Spend. - 3 Yr. Gr. Rate -3.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 28.3%
Total Debt to Equity 28.3%
Interest Coverage 35
Management Effectiveness
Return On Assets 12.2%
Ret/ On Assets - 3 Yr. Avg. 13.1%
Return On Total Capital 13.1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.8%
Return On Equity 16.1%
Return On Equity - 3 Yr. Avg. 16.6%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 27.8%
Gross Margin - 3 Yr. Avg. 26.8%
EBITDA Margin 19.4%
EBITDA Margin - 3 Yr. Avg. 18.3%
Operating Margin 14.4%
Oper. Margin - 3 Yr. Avg. 13.7%
Pre-Tax Margin 13.6%
Pre-Tax Margin - 3 Yr. Avg. 13.2%
Net Profit Margin 13.4%
Net Profit Margin - 3 Yr. Avg. 13%
Effective Tax Rate 1.5%
Eff/ Tax Rate - 3 Yr. Avg. 1.6%
Payout Ratio 21.4%

GIL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GIL stock intrinsic value calculation we used $3493 million for the last fiscal year's total revenue generated by Gildan Activewear Inc.. The default revenue input number comes from 2017 income statement of Gildan Activewear Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our GIL stock valuation model: a) initial revenue growth rate of 3.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for GIL is calculated based on our internal credit rating of Gildan Activewear Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Gildan Activewear Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of GIL stock the variable cost ratio is equal to 88.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for GIL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Gildan Activewear Inc..

Corporate tax rate of 27% is the nominal tax rate for Gildan Activewear Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the GIL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for GIL are equal to 54.4%.

Life of production assets of 11.4 years is the average useful life of capital assets used in Gildan Activewear Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for GIL is equal to 41.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2864 million for Gildan Activewear Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 224.591 million for Gildan Activewear Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Gildan Activewear Inc. at the current share price and the inputted number of shares is $8.5 billion.

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Financial statements of GIL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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