NEW BEARISH Plays
Hanesbrand Inc. - HBI - close: 27.53 change: -1.27
Stop Loss: 29.15
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on October -- at $---.--
Listed on October 19, 2015
Time Frame: Exit PRIOR to earnings (see below)
Average Daily Volume = 3.4 million
New Positions: Yes, see below
The long-term rally in HBI may have peaked. The stock surged more than +500% from the beginning of 2012 to its 2015 highs near $34.50. Now momentum has reversed.
HBI is in the consumer goods sector. According to the company,
"HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Europe and Asia under some of the world's strongest apparel brands, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die/Nur Der, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company's low-cost global supply chain."
The upward momentum in shares of HBI had stalled in March this year. Shares tried and failed to breakout past the $34.50-35.00 zone several times between March and July. Then on July 30th HBI reported its Q2 earnings. Profits came in at $0.50 a share, which was in-line with estimates. Revenues were up +13.4% to $1.52 billion yet that missed estimates of $1.57 billion. Management provided soft guidance for the rest of 2015. The stock plunged the next two days.
Since their disappointing guidance in July investors have been selling the rallies in HBI. That has not stopped Wall Street from defending it. 12 of the 13 analyst firms that cover HBI are bullish on the stock. On September 17th shares of HBI popped after Goldman Sachs upgraded shares and gave it at $40 price target. Unfortunately for bullish investors the Goldman pop failed at resistance. Shares have continued to sink and now they're accelerating lower.
The weakness in HBI is a little bit surprising. The new TransPacific Partnership deal should be positive for apparel makers like HBI. Plus there was recent news that cotton prices are expected to decline through the rest of this year and into 2016. Traders don't seem to care about these potentially bullish tailwinds for HBI. The stock displayed significant relative weakness today with a -4.4% decline.
The market might be worried about HBI's relationship with Wal-Mart (WMT). Last week WMT surprised Wall Street by significantly lowering their earnings guidance. Now WMT is pressuring its suppliers, which could squeeze margins for companies like HBI. That's significant since WMT accounts for over 20% of HBI's sales.
Technically HBI is bearish. Shares have created a big bearish double top on the weekly chart (see below). More recently the rally attempts have failed at resistance near the 200-dma. The point & figure chart is bearish and forecasting at $20.00 target.
Today's low was $27.45. Tonight we are suggesting a trigger to launch bearish positions at $27.35. Please note that this is a short-term trade, which will probably last two or three weeks. HBI is due to report earnings in very late October or early November. There is no confirmed date yet but we plan to exit prior to HBI's announcement.
Trigger @ $27.35
- Suggested Positions -
Short HBI @ $27.35
- (or for more adventurous traders, try this option) -
Buy the NOV $26 PUT (HBI151120P26) current ask $0.60
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike