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Baird Upgraded Coach to ‘Outperform’

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Price movement 

Coach (COH) has a market cap of $12.1 billion. It rose by 2.5% to close at $43.37 per share on July 18, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 3.3%, 13.3%, and 34.8%, respectively, on the same day. COH is trading 7.3% above its 20-day moving average, 10.3% above its 50-day moving average, and 22.7% above its 200-day moving average.

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Related ETF and peers

The ALPS Sector Dividend Dogs ETF (SDOG) invests 2.0% of its holdings in Coach. The ETF tracks an equal-weighted index of the five highest-yielding S&P 500 securities in each sector. The YTD price movement of SDOG was 19.7% on July 18.

The market caps of Coach’s competitors are as follows:

  • Estée Lauder (EL): $34.6 billion
  • Ralph Lauren (RL): $8.3 billion
  • Michael Kors Holdings (KORS): $9.2 billion

Coach’s rating

Robert W. Baird has upgraded Coach’s rating to “outperform” from “neutral.” It also raised the stock price target to $50.0 from $45.0 per share. TheStreet Ratings rated the stock as a “hold” with a score of C.

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Coach in fiscal 3Q16

Coach reported fiscal 3Q16 net sales of $1.0 billion, a rise of 11.2% from $929.3 million in fiscal 3Q15. In fiscal 3Q16, it opened two stores in North America, two in Japan, four in Greater China, two in the rest of Asia, and two in Europe in fiscal 3Q16. This quarter, it also opened one Stuart Weitzman store.

Coach’s net income and earnings per share rose to $112.5 million and $0.40, respectively, in fiscal 3Q16, from $88.1 million and $0.32, respectively, in fiscal 3Q15.

Coach’s cash and cash equivalents and short-term investments and inventories fell by 16.0% and 4.3%, respectively, in fiscal 3Q16 from fiscal 4Q15. Its current ratio rose to 3.1x and its debt-to-equity ratio fell to 0.78x in fiscal 3Q16 from 3.0x and 0.87x, respectively, in fiscal 4Q15.

Projections

Coach (COH) has made the following projections for fiscal 2016.

  • It expects its Coach brand revenue growth to be in the low single digits in constant currency terms on a 52-week basis.
  • Foreign currency should hurt revenue growth by 2.3%–2.5%.
  • It expects the Coach brand’s operating margin to be in the mid teens to high teens.
  • It foresees an interest expense of ~$30 million.
  • It expects a tax rate of ~28%.

These projections don’t include pre-tax charges for the following:

  • transformational plan of ~$50 million
  • Stuart Weitzman acquisition charges of ~$30 million
  • charges related to operational efficiency initiatives

Coach expects the 53rd week in fiscal 2016 to contribute $75 million–$80 million in incremental revenue and $0.06 in earnings per share.

Next, we’ll take a look at Cal-Maine Foods.

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