Gildan Activewear's (GIL) low-cost manufacturing model may help drive additional sales growth and margin expansion, UBS Securities said Friday in a report.
Investors remain concerned that Gildan may struggle to grow revenue beyond the low-single-digit range on a normalized basis and about the impact of rising oil and cotton prices on margins, the report said.
UBS said it sees more room for revenue growth than the market expects, noting that oil represents only about 5% of Gildan's cost of goods sold. Past cotton price spikes in 2011 and 2022 led to meaningful share gains for Gildan because of its cost advantage, and a similar dynamic may emerge if cotton prices stay elevated, the report said.
Gildan's factories in Central America give it a structural cost edge over peers, which may make the company an attractive partner for apparel brands looking to lower production costs, the report said.
The company may generate $1 billion of free cash flow in 2028, limiting downside risk, the report said.
UBS maintained its buy rating on Gildan stock with a price target of $110.
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