Where does this put fair value for the stock, which was at $25+ a week ago and now is fetching north of $29 in pre-market trading? I think more upside is ahead. Since Coach's fiscal year ends in June, investors should adjust the company's profit guidance to a calendar year projection. That puts 2006 EPS at $1.41, followed by $1.69 in 2007.
In a strong bull market, companies growing at 20%-plus can garner price-earnings ratios of 30 fairly easily. In this market environment though, that is a pretty aggressive assumption. I think COH shares should be valued at no less than 25 times earnings, but with a lot of people jittery about the consumer discretionary sector right now, we can use a valuation range of 20-25 times earnings to be overly conservative.
If we use a 25 P/E on 2006 numbers and a 20 P/E on 2007 projections, fair value on Coach shares is in the $34-$35 area. So, even after a 15% gain since last week, we still have some room for further upside in the stock.