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Guggenheim Has Given Coach a ‘Buy’ Rating

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Price movement

Coach (COH) has a market cap of $10.2 billion. It rose 0.97% to close at $36.56 per share on September 30, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.4%, -3.4%, and 14.7%, respectively, on the same day.

COH is trading 0.26% above its 20-day moving average, 5.9% below its 50-day moving average, and 2.6% below 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 20.0% on September 30, 2016.

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

  • Estée Lauder (EL): $32.4 billion
  • Ralph Lauren (RL): $8.3 billion
  • Michael Kors Holdings (KORS): $7.9 billion

Coach’s rating

Guggenheim has initiated coverage of Coach with a “buy” rating and set the stock’s price target at $50 per share.

On September 29, 2016, CLSA initiated coverage of Coach with a “buy” rating and set the stock’s price target at $45 per share.

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Performance of Coach in fiscal 4Q16 and fiscal 2016

Coach reported fiscal 4Q16 net sales of $1.2 billion, a rise of 20.0% over $1.0 billion in fiscal 4Q15. The company’s gross profit margin fell 1.0% between fiscal 4Q15 and fiscal 4Q16.

Coach’s net income and EPS (earnings per share) rose to $81.5 million and $0.29, respectively, in fiscal 4Q16 compared with $11.7 million and $0.04 in fiscal 4Q15. It reported adjusted EPS of $0.45 in fiscal 4Q16, a rise of 45.2% from fiscal 4Q15.

Fiscal 2016 results

In fiscal 2016, COH reported net sales of $4.5 billion, a rise of 7.1% year-over-year. The company’s gross profit margin fell 0.23%, and its operating income rose 5.7% in fiscal 2016. Its net income and EPS rose to $460.5 million and $1.65, respectively, in fiscal 2016 compared with $402.4 million and $1.45, respectively, in fiscal 2015.

Coach’s cash and cash equivalents and its short-term investments and inventories fell 13.3% and 5.3%, respectively, in fiscal 2016. Its current ratio and debt-to-equity ratio fell to 2.6x and 0.82x, respectively, in fiscal 2016, compared with 3.0x and 0.87x in fiscal 2015.

Projections

The company has made the following projections for fiscal 2017:

  • revenue growth in the low- to mid-single digits, including foreign currency benefits of 1.0%–1.5%
  • operating margin of 18.5%–19.0%
  • interest expense of ~$25 million
  • tax rate of ~28%
  • net income growth in the double digits
  • EPS growth in the double digits

Next, we’ll look at VF Corporation (VFC).

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