Shares of consumer goods producer Hanesbrands (NYSE:HBI) drove significantly higher during the midweek session on unconfirmed chatter that an activist investor will target the enterprise to push for positive changes. Although intriguing from a near-term speculation window, HBI stock presents an incredibly risky idea. Plus, a raging debate exists about the effectiveness of activist investing.
According to a Seeking Alpha article, traders circulated a report from Activist Insight that suggests HBI stock could be a top target for an activist initiative. “The speculation hinges on the premise that an activist could push the consumer products seller to make operational improvements and change the marketing strategy with the Champions brand,” writes Seeking Alpha News Editor Clark Schultz.
In addition, it’s possible that the activist could push Hanesbrands on its timeline to reinstate a quarterly dividend. Early this year, The Wall Street Journal reported that HBI stock plunged after the apparel maker eliminated its dividend to bolster its balance sheet amid a continued sales slump.
At the time, the WSJ stated that sales slipped 8% in 2022. Further, management revealed that sales may fall again this year. Unsurprisingly, HBI stock sits at more than 21% below parity against the January opener.
HBI Stock Enjoys No Guarantees of a Sustained Activist Lift
To be 100% clear, the reports associated with activist investor interest in HBI stock represent an unconfirmed rumor. Naturally, anyone who jumps on this trade will be doing so on mostly blind speculation.
That said, even if the rumor turns out to be true, prospective investors should realize that activist investing features debatable effectiveness. Indeed, a 2022 article published in the Yale Law Journal argued that activists generally make unprofitable errors. Therefore, their actions should be regulated like corporate raiders.
From another source, Harvard Law School noted that in 2017, there were 484 activist investor campaigns involving 428 companies. Out of this tally, 101 cases resulted in successful campaigns, meaning that activists accomplished their stated goals. Further, 63 campaigns involved activists and their target companies settling the disputed issues.
Breaking down the details, activist investors in 2017 enjoyed only a 34% rate of success. Within the non-successful efforts, 34% were either unsuccessful or withdrawn by the activists. The other 32% involved announced campaigns that either failed to gain traction or were ongoing.
Put another way, a possible confirmation of the aforementioned rumor might not help HBI stock.
Why It Matters
Presently, Wall Street analysts rate HBI stock as a consensus hold. This assessment breaks down as three “holds” and no “buys” nor any “sells.” Further, the average price target lands at $5.50, implying nearly 4% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
