Every major global event brings with it changes to our national lexicon. Before the Covid-19 pandemic, few Americans knew what the initials PPE stood for. Today, virtually anyone knows that PPE stands for personal protective equipment.
At the onset of the mitigation policies, the goal of flattening the curve was being done to prevent our health care system from becoming overwhelmed. Part of that concern stemmed from a shortage of personal protective equipment. These are the masks, gloves, goggles and gowns that help protect medical workers against viral or bacterial infections.
As the novel coronavirus became labeled a global pandemic, the global mantra became to “flatten the curve” in an effort to prevent our healthcare system from being overwhelmed.
The United States is being referred to as being on a war time footing. Manufacturers that were already producing PPE have significantly ramped up capacity. And many companies are converting their excess manufacturing capacity to produce personal protective equipment.
In fairness, this may only be a reason for some of these companies to “keep the lights on” right now. But many of these companies have a good story to tell. And it’s that story that can make them solid investments in the future.
Quick Links
- Hanes Brands
- Gap
- Ralph Lauren
- Canada Goose Holdings
- 3M
- Honeywell
#1 - Hanes Brands (NYSE:HBI)
Hanes Brands (HBI) - It hasn’t been easy to be an investor in Hanesbrands (NYSE:HBI) stock. While the broader market was surging, HBI stock has fallen approximately 70% in the last five years. And the company is facing some headwinds with a change in leadership, softening sales even before the Covid-19 pandemic broke out, and a contract with Amazon (NASDAQ:AMZN) that increases the competitive field.
Add to that, the company delivered a disappointing earnings report which took a little shine off the stock that had been recovering. But there is reason for hope.
Hanesbrands will at least have a pulse of revenue in the second quarter. But the company is still reducing capital spending to address critical needs exclusively. However, they will still sell its Champion and Hanes brands online.
But the vast majority of its production capacity at this time is going to helping address the PPE shortage. The company has pledged to produce over 20 million medical gowns and over 320 million face coverings. The company is ahead of schedule on its face covering production. And the company is also preparing to add capacity to meet the demand for face coverings that will go to consumers, retailers and other business owners who are attempting to re-open their businesses.
On the other side of the Covid-19 pandemic, the company is planning a major push into athleisure wear which may give the company a competitive advantage on the Amazon platform. The company currently has an attractive P/E ratio of 6.73 and a quarterly dividend which the company just paid in March.
About Hanesbrands
Hanesbrands Inc, a consumer goods company, designs, manufactures, sources, and sells a range of range of innerwear apparels for men, women, and children in the Americas, Europe, the Asia pacific, and internationally. The company operates through three segments: Innerwear, Activewear, and International.
Read More - Current Price
- $8.46
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $6.00 (29.0% Downside)
#2 - Gap (NYSE:GPS)
Gap (NYSE:GPS) is contributing to the PPE shortage by using their excess production capacity to produce masks and protective gear. They are also using their global supply chain contacts to help procure additional masks and gowns.
In addition, the company has a freshly inked deal with IMG to be its first ever multi-brand, exclusive licensing representative. Essentially, IMG will use its global reach to introduce Gap brands to new audiences. The deal will initially focus on the Gap, Banana Republic, and Janie and Jack brands. The deal may eventually extend into additional categories such as baby equipment, baby care, home décor, textiles, and furniture.
With that said, let’s get the elephant out of the room. Although the company had a strong balance sheet, the company was burning through cash quickly. However, the cash-strapped company recently raised $2.25 billion in a debt offering. This gives the company the liquidity that should help it avoid bankruptcy. The company probably needs to jettison its Gap brand, but the IMG deal may forestall that decision.
Investing in retail stocks is always precarious, and this is no different. But Gap should be able to weather the current storm. The Covid-19 pandemic will likely accelerate decisions that companies were going to have to make anyway. While that is not good news for some employees, it could be very good news for shareholders.
About GAP
The Gap, Inc operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include adult apparel and accessories; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls.
Read More - Current Price
- $0.00
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $27.08
#3 - Ralph Lauren (NYSE:RL)
Ralph Lauren (NYSE:RL) is also on the front line of the PPE production market. The luxury clothing manufacturer is ramping up production to meet a commitment to manufacture 250,000 masks and 25,000 isolation gowns.
But like all the companies in this presentation, Ralph Lauren has a couple of catalysts that should propel the stock in the new economy. Ralph Lauren Home used the recent High Point Market to announce an exclusive agreement with Theodore Alexander. Although the debut had to be virtual, the details look promising for RL stock.
Theodore Alexander will manufacture the complete Ralph Lauren Home collection. While Theodore Alexander will be in charge of sales, distribution and manufacturing, Ralph Lauren will maintain oversight over design and marketing.
And analysts have a bullish price recommendation of over $90 on RL stock which would be an over 20% increase from the current stock price. While the stock faces some headwinds like any other retailer, it’s likely that Ralph Lauren’s core customer will be less impacted by the recent surge in unemployment. And that means the company will be well positioned to see sales increase. This may be particularly true if there is a surge in home renovation projects as the economy begins to re-open.
About Ralph Lauren
Ralph Lauren Corporation designs, markets, and distributes lifestyle products in North America, Europe, Asia, and internationally. The company offers apparel, including a range of men's, women's, and children's clothing; footwear and accessories, which comprise casual shoes, dress shoes, boots, sneakers, sandals, eyewear, watches, fashion and fine jewelry, scarves, hats, gloves, and umbrellas, as well as leather goods, such as handbags, luggage, small leather goods, and belts; home products consisting of bed and bath lines, furniture, fabric and wallcoverings, floor coverings, lighting, tabletop, kitchen linens, floor coverings, dining, decorative accessories, and giftware; and fragrances.
Read More - Current Price
- $202.15
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $223.90 (10.8% Upside)
#4 - Canada Goose Holdings (NYSE:GOOS)
Canada Goose Holdings (NYSE:GOOS) is doing its part to aid in the Covid-19 pandemic by manufacturing scrubs and gowns in its Toronto and Winnipeg facilities. The company has an initial goal of producing 10,000 units. But like the other stocks in this presentation, the question is what will happen after the economy re-opens.
In the case of GOOS stock, the nagging question is whether the company will see a rebound in sales for its luxury outerwear products. But investors may have some potentially good news as China is reopening. As the French retailer Hermes reopened its stores in Guangzhou, China the company broke a single-day record with approximately $2.7 million in sales. Could this be anecdotal? Perhaps. But it could also be indicative of pent-up demand for high-end goods.
And GOOS just entered the Chinese market last year. So the company is certainly hoping that sales of Hermes goods in the spring will translate to demand for their winter jackets come the fall.
Analysts are giving the company a consensus price target of $39.64 which is an increase of over 70% from its current level.
About Canada Goose
Canada Goose Holdings Inc, together with its subsidiaries, designs, manufactures, and sells performance luxury apparel for men, women, youth, children, and babies in Canada, the United States, Asia Pacific, Europe, the Middle East, and Africa. The company operates through three segments: Direct-to-Consumer, Wholesale, and Other.
Read More - Current Price
- $9.33
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 5 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $11.80 (26.5% Upside)
#5 - 3M (NYSE:MMM)
3M Stock (NYSE:MMM) is different from the stocks listed so far. They have been in the PPE business for a long time. The company is one one of the leading manufacturers of the specialized N-95 masks. After getting into a well-publicized spat with the Trump administration, the company reached an agreement to produce 167 million masks through June.
The order is part of the Defense Production Act (DPA). 3M was one of three companies to receive a portion of the $133 million in production from N95 mask production. Initial reports have 3M receiving $76 million of the contract with the rest being split between Honeywell and Halyard. 3M is also working with Cummins (NYSE:CMI) to ramp up production for high-efficiency particulate filters that 3M will use in their powered air purifying respirators (PAPRs).
MMM stock is down nearly 50% from its all-time of over $250 per share reached in 2018. And the outlook for the rest of the company’s business units is not encouraging. However, as a long-term play the stock may present an attractive entry point.
About 3M
3M Company provides diversified technology services in the United States and internationally. The company's Safety and Industrial segment offers industrial abrasives and finishing for metalworking applications; autobody repair solutions; closure systems for personal hygiene products, masking, and packaging materials; electrical products and materials for construction and maintenance, power distribution, and electrical original equipment manufacturers; structural adhesives and tapes; respiratory, hearing, eye, and fall protection solutions; and natural and color-coated mineral granules for shingles.
Read More - Current Price
- $127.83
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $144.87 (13.3% Upside)
#6 - Honeywell (NASDAQ:HON)
Honeywell (NYSE:HON) is finding many of its traditional business units under pressure. However, the company is on the front line of the American effort to delivery N95 face masks. The company was listed as one of three companies to receive a portion of $133 million from the United States as part of the Defense Production Act (DPA).
Honeywell is using some of the spare capacity from its Phoenix Engines campus in Arizona.
Honeywell faces a challenging environment because it is reliant on commercial aviation which is shut down and will be for the foreseeable future. HON stock is down over 25% for the year, which is better than the 40% decline in aerospace supplier stocks for 2020. Honeywell’s own internal estimates is suggesting the aerospace sector will fall 25% on a year-over-year basis.
The company may get a slight boost as office buildings open up, but with airports and colleges remaining shut down, it’s hard to see that as being much of a bump. But value investors can point to the company’s positive cash flow and the dividend as reasons to own the stock.
About Honeywell International
Honeywell International Inc engages in the aerospace technologies, building automation, energy and sustainable solutions, and industrial automation businesses in the United States, Europe, and internationally. The company's Aerospace segment offers auxiliary power units, propulsion engines, integrated avionics, environmental control and electric power systems, engine controls, flight safety, communications, navigation hardware, data and software applications, radar and surveillance systems, aircraft lighting, advanced systems and instruments, satellite and space components, and aircraft wheels and brakes; spare parts; repair, overhaul, and maintenance services; and thermal systems, as well as wireless connectivity services.
Read More - Current Price
- $226.67
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $241.45 (6.5% Upside)
The novel coronavirus that has spawned the Covid-19 pandemic is highlighting the importance of our nation’s healthcare workers. It also highlights the need for these workers to have proper protective equipment.
If you’re an investor that’s reading this presentation, you may be concerned that this may be a one-time event. But when events like these happen, the economy that emerges on the other side is always a little different. There will be much more emphasis placed on PPE in future years.
Market Industry Reports (MIR) recently released a report that cites the Global Medical Protective Clothing Market may grow at a CAGR of approximately 6% in the next 10 years.
And a U.S. Conference of Mayors survey found that 88% of respondents said their safety and medical personnel lacked an adequate supply of personal protective equipment.
And that means that some of these companies may find that there’s money to be made in continuing allowing some manufacturing capacity to keep the pipeline stocked.
The stocks in this presentation contain a substantial amount of risk. And investors may need hold these stocks for several years before they see a substantial benefit. Nevertheless, with a vaccine at least six to nine months away and no FDA-approved treatments currently in the pipeline, we will be sadly dealing with the novel coronavirus for some time. And that means that these stocks may still have some additional revenue to come from manufacturing personal protective equipment.
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