After A 25% Gain On Coach In 45 Days, Is There Further Upside?

| About: Coach, Inc. (COH)

On July 31, 2012, Coach (NYSE:COH) dropped almost 20% in one day, which offered a unique opportunity to pick up this excellent stock at a bargain price under $50. Although still down from the all-time high of $79 achieved on March 12, 2012, by the close of market on September 14th, just 45 days after the precipitous drop, the stock had rebounded to over $62, a gain of 24%...not too shabby.

As mentioned in my initial article, Coach: Upside Is In The Bag, occasionally a minor speed bump can provide an excellent short-term situation, which is great for the swift and opportunistic investor. But, now that we've experienced a healthy rebound, what is next for Lew Frankfort and his bag of tricks?

At $62, Coach is trading at a current and forward p/e of 17.5 and 16.0, respectively. At high points, the stock trades closer to a forward p/e of 19, which is where it was at its high in March '12. The price was $79 with an EPS estimate of $4.16 ($79/$4.16 = 18.95 p/e). Taking newly revised FY '13 & FY '14 consensus estimates of $3.85 and $4.43, respectively, I think that as the company demonstrates renewed strength, the p/e should expand to historical rates, which can get to a new stock price of $84 or a 35% gain ($84-$62=$22; $22/$62 =35%) within 2 years.

Here's my math on the range:

Low: 16 p/e x $3.85 (FY '13) = $61/share

Medium: 16 p/e x $4.43 (FY '14) = $71/share

High: 19 p/e x $4.43 (FY '14) = $84/share

Based on the above simple calculations, I believe the stock has near-term upside to about $70/share or 12% from where it is today. Given the recent rapid move, I recommend waiting for a pullback into the $50s before adding to (or creating) a position. Although the management team is brilliant and the products are top quality with a loyal fan base, competition in the global luxury good market is fierce and the consumer remains under pressure. Personally, I'd like to see results of Q1 FY '13 to understand how Coach is navigating through its recent blip and also hear perspective on outlook. But, should the market sell off sooner, I'd recommend putting some stock in your goody bag in the mid-50s.

Disclosure: I am long COH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.