All Entries Tagged With: "Coach"
Upping Coach’s 12-Month Target: Still a Buy
Back on June 29th, 2009 I recommended everyone to buy Coach (COH) at around $25.50 per share with a 12-month expectation of $33. Well since then Coach
has soared nearly 32% surpassing my 12-month target. In this case, most people would say sell, I say the opposite and want to buy more. After reevaluating Coach and its long-term growth prospects I now believe it is worth more than $43 per share and this is why:
Strength
What I like about Coach is there a winning brand. Throughout time they have been successful posting profitable quarter after profitable quarter. They even managed to prevail through the recession as consumers chose Coaches products over expensive European Brands with $2k+ price tags. I see this as a winning strategy as Coach has a unique ability to pose themselves as a luxury brand yet still appeal to value-focused shoppers. In the last quarter, we saw Coach’s handbags that are $300 or under rise 57%. Adding to this Coach is expanding globally. With the evolution of the Coach stores, they are gaining market share especially with their vast international expansion in Japan and China. Coach is opening 50 stores worldwide in the next five years. I see this international expansion supporting their global growth and strengthening the brand.
Value
Strong points about Coach are its excellent ability to post a return of over 100% on their capital. Adding to this, they manage a 10% earnings yield. Adding to this Coach has only $25 million in debt giving them flexibility to expand. As a business they are very efficient as you can tell by their 23% free cash flow margin. With a P/E of 15 and a PEG of 1.1 these are also strong numbers adding value. I believe the true strength in Coach’s brand will be seen in 2010 when consumer spending picks up pace and the economy starts to see more significant signs of recovery.
Growth
As of right now, Coach’s true growth potential and revenue growth is being limited by the recession. Contrary to this though they still have had an impressive revenue stream despite the fall down in consumer spending. The company has been successful in cutting unnecessary costs, results that will only benefit them long-term. Over the next five years, analysts expect Coach’s sales growth estimates to increase year by year. With a steady stream of new handbags expected to release in December, 4th quarter sales should jump significantly. Adding to this is the 9% store expansion in new markets.
Overall
All in all, Coach is a fundamental sound value-growth company that will benefit even more from a recovery in the economy. I would suggest trying and to buy Coach on a dip. Watch the support levels to see where is a good entering point. Overall my 12-month target has now been raised to $43.
Coach: A Growing Brand
Coach designs, makes and markets fine accessories for women and men, including handbags, weekend and travel accessories, outerwear, footwear, and business cases.
What I Like
With COH share price currently at $26.93 its shows the company is on an uptrend when valued against the 50-Day Moving Average, which is $25.84. With a 52-Week High of $32.96 (Aug 08) and a 52-Week Low $11.43 (Mar 09) the stock has seen the share of volatility that the markets have experienced. I have been a big fan of Coach for the past couple months as it has been on the Stocks on Wall Street Bullish List and I now want all readers to know about it. What I like about Coach is their winning brand, which has been successful in 2009 as consumers avoid European Brands with $2k+ price tags for Coach products. With the evolution of the Coach stores, they are gaining market share especially with their vast international expansion in Japan and China. Coach is opening 50 stores worldwide in the next five years, a number that would have been larger if it wasn’t for the overall weakness in the economy and consumer spending. Despite these concerns, analysts still expect Coach’s sales to grow 2% in 2009 and 3% in 2010. Coach has favorable long-term sales and earnings prospects, which should help it, prevail long-term even if consumer-spending weaknesses continue. In recent times, Coach has initiated a lower price strategy reducing prices 10-15% on the average handbag. This has proven successful in luring in new customers and we have seen the results in recent income statements. Right now valuations show that Coach is undervalued 25% compared to most other retailers making it an attractive investment. Volume is above 100,000, which is the threshold in which I set. They have outstanding numbers with a 28.77% return on equity and 46.07% return on assets. Another plus is the company is not in debt and has half a billion in cash on hand top help expand their worldwide brand.
What I Don’t Like
Risks for Coach are the consumer spending weakness that currently exists and whether or not it will continue, and if so how long.
Overview
Overall Coach is a strong growing brand that will continue to expand in the next few years which large growth opportunities internationally. I value Coach at $33 per share come 12-months from now.
