Coach Delivers On All Fronts

| About: Coach, Inc. (COH)

I wrote in March that I thought Coach (NYSE:COH) was undervalued at under $50 a share. The stock has been in a slow uptrend since then but the stock's performance has been tepid. All that changed significantly today when Coach submitted its quarterly results that delivered on all fronts and should drive the stock substantially higher.

Highlights from Coach's earnings report:

  • Earnings per share came in at 84 cents a share, 3 cents above estimates.
  • North American sales were up 7% Y/Y and direct sales to consumers were also up 6%.
  • The company showed impressive 40% growth in China, a key to expanding their luxury band into emerging markets. Same store sales rose in the double digits in the Middle Kingdom. It also raised its full year guidance to $425mm in sales in China from $400mm previously.
  • Coach also looks on track to double sales in its men's categories to $600mm this year.
  • Just for good measure, the company upped its dividend by 15% to $1.35 a share annually.

I think this is just the beginning of the comeback for the venerable maker of luxury handbags and accessories.

Four additional reasons COH can go higher from $55 a share:

  1. Analysts expect revenues to grow at between a 7% to 8% CAGR over the next two fiscal years and an investor has to love these latest readings about sales growth in China. The stock sports a five year projected PEG of 1.
  2. COH goes for around 12.5x forward earnings, a discount to its five year average (15.3).
  3. S&P puts its highest rating "Strong Buy" on the shares. It also has a $68 price target on COH. I would look for S&P and other analyst firms to revise their price targets up based on these quarterly results.
  4. The company has a solid balance sheet with over $800mm in net cash. The stock should now yield around 2.5% based on its new dividend payout. The company has now also quintupled payouts since 2009.

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.

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Tagged: , , , Textile - Apparel Footwear & Accessories
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