Gildan: We Upgrade Our Moat Rating to Narrow From No-Moat and Raise Fair Value Estimates by Over 40%

We are changing our moat rating on Gildan to a narrow moat from our prior no-moat rating based on a cost advantage. We believe it has built an efficient supply chain that differentiates it from competitors. Although it is difficult to attain a cost-based edge in the apparel industry, we believe that the firm’s investments in its vertically integrated supply chain have allowed it to gain one in the production and distribution of t-shirts and fleece for the US printwear industry. While this is a niche market in apparel, it has become highly profitable for Gildan as it has relentlessly lowered costs while gaining market share. Our view is that the firm’s advantages in production and distribution are strong enough that it will not face significant margin compression from competitive pressures for at least the next 10 years.