"Book the gain," Hedgeye CEO Keith McCullough wrote today.
Hanesbrands (HBI) is down -13.6% since we added it to Investing Ideas on the short side at the end of March versus up +5.6% for the S&P 500. In a challenging market environment, we're choosing to book the gain.
To be clear, HBI remains a top short idea for our Retail team. Please see the brief update below from our Retail team:
"We continue to think that several poor management decisions are destroying long term shareholder value, including:
- Underinvesting to boost margins
- Bad acquisitions at high prices
- Stripping out integration costs that upstanding companies would include as a cost of doing business,
- And getting paid on non-GAAP earnings,
- Stretching the tax rate down to sub 7%%,
- And subsequently putting up sky high earnings/cash flow expectations when the environment otherwise prompted an otherwise savvy CEO to sell stock and subsequently leave his post at the age of 59.
These factors along with an increasingly competitive environment in core US categories, lead us to believe that the company will see significantly reduced earnings and operating cash flow over the next 18 months.
We think the stock price risk reward starts to balance out in the mid-teens, with the ultimate downside for the stock in the single digits."
