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Coach Is Trading at the Upper End of Its Valuations

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Looking at Coach’s valuations

Coach (COH) has been among the best-performing apparel stocks in 2017. The company has gained 35% year-to-date and is currently trading near its 52-week price peak.

Coach’s one-year forward earnings multiple surged to 20.7x versus a three-year average of 18.3x. Rising valuations suggest a bullish market sentiment toward the company following its recent acquisition of Kate Spade (KATE) and its solid growth prospects.

Coach reached a deal to acquire Kate Spade for $2.4 billion on May 8, 2017. Kate Spade’s acquisition could help Coach establish a better connection with Millennials. Kate Spade is currently trading at a slight premium to Coach, and it’s valued at a one-year forward PE of 22.7x.

However, competitor Michael Kors’ (KORS) valuations are just half that of Coach and Kate Spade. The company is operating at a one-year forward PE of 10.2x.

Compared with other apparel stocks, Coach mostly trades at a premium. For instance, PVH Corp. (PVH), V.F. Corporation (VFC), and Ralph Lauren (RL) are valued at 14.8x, 19.4x, and 15.7x, respectively.

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Earnings potential

While Coach trades at a premium to most of its peers, its earnings potential also seems to be better in comparison. The company’s earnings per share (or EPS) are expected to rise 8.5% over the next 12 months (or NTM).

In comparison, Ralph Lauren, Michael Kors, and VFC could fall 16.5%, 15.3%, and 1.0%, respectively, in NTM EPS. PVH and KATE, however, could witness respective jumps of 11% and 23.4% in NTM EPS.

Investors seeking diversified exposure to Coach through ETFs can choose to invest in the iShares Morningstar Mid-Cap Value ETF (JKI). Coach comprises ~0.87% of JKI.

In the next article, we’ll look at the recent analyst action on Coach.

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