Coach, Inc. [NYSE:COH] Dec. 31, 2007 close: $30.58
52-week range: $29.22 - $54.00
Coach designs, manufactures and retails relatively high-end handbags, accessories, luggage, clothing etc. They also license their brand for special edition automobiles and other product lines sold through authorized third parties. Since being spun off from Sara Lee in late 2000 COH has posted 7 straight all-time record years in both sales and earnings. The current FY [ending June 2008] will almost certainly continue this streak.
Their balance sheet is sterling with just $2.9 MM in total debt versus almost $1.24 billion in cash as of September 29, 2007. Long term debt = < 1% of total capital. Balance sheet cash has been building dramatically. It was $383 MM at FY end 2005, $537 MM at FY end 2006 before surging to the aforementioned $1.24 billion. This leaves room for expansion, share buybacks or other strategic moves including the initiation of dividend payments.
Until recently COH had commanded a premium P/E in the markeplace with typical multiples of 22X - 25X. Fears of slowing consumer spending have made investors vary of companies like Coach and we now have a chance to own one of the best operators at an unusually depressed valuation.
Consensus estimates for current and next FY's are now running $2.07 and $2.45 making COH's P/E 14.8X this year's and just 12.5X forward EPS. These are the lowest levels ever since the spin-off in 2000. Price/CF and P/BV show similar bargain valuations compared with all past history for these shares.
Value Line assigns an 'A' financial strength rating, a top 1% ranking for 'price growth persistence', and an 85th percentile 'earnings predicability' grade to COH shares.
There were mulitple insider sells of COH around 6 - 8 months ago but all those occurred between $45 - $51 /share - well above today's price. Four of our site's Guru's hold these shares - Chris Davis, Ron Baron, Dodge & Cox and George Soros. Soros's current position is tiny but he may very well become more interested again at such cheap valuation parameters
Value Line assumes a return to a 25X mutiple over the next 3 - 5 years. Even assuming a much more conservative 18X multiple [to allow for skepticism on the near-term economic picture] a goal price of $44.10 seems very reasonable for 15 - 18 months out.
Great companies that typically command 'best of breed' premiums rarely stay depressed for long. As decent earnings are reported in future quarters renewed investor interest should be 'in the bag'.
Thus a 44% or better total return looks achievable on this high quality issue with bigger upside if a significant recession fails to materialize. COH shares actually traded as high as $45 and $54 in 2006 and 2007 when sales, cash flow and earnings were less than expected for the future.
Risk? With today's valuation so constrained [by historical measures] I see very small downside other than the dreaded 'dead money' scenario if investors continue to shun upscale retailers.
52-week range: $29.22 - $54.00
Coach designs, manufactures and retails relatively high-end handbags, accessories, luggage, clothing etc. They also license their brand for special edition automobiles and other product lines sold through authorized third parties. Since being spun off from Sara Lee in late 2000 COH has posted 7 straight all-time record years in both sales and earnings. The current FY [ending June 2008] will almost certainly continue this streak.
Their balance sheet is sterling with just $2.9 MM in total debt versus almost $1.24 billion in cash as of September 29, 2007. Long term debt = < 1% of total capital. Balance sheet cash has been building dramatically. It was $383 MM at FY end 2005, $537 MM at FY end 2006 before surging to the aforementioned $1.24 billion. This leaves room for expansion, share buybacks or other strategic moves including the initiation of dividend payments.
Until recently COH had commanded a premium P/E in the markeplace with typical multiples of 22X - 25X. Fears of slowing consumer spending have made investors vary of companies like Coach and we now have a chance to own one of the best operators at an unusually depressed valuation.
Consensus estimates for current and next FY's are now running $2.07 and $2.45 making COH's P/E 14.8X this year's and just 12.5X forward EPS. These are the lowest levels ever since the spin-off in 2000. Price/CF and P/BV show similar bargain valuations compared with all past history for these shares.
Value Line assigns an 'A' financial strength rating, a top 1% ranking for 'price growth persistence', and an 85th percentile 'earnings predicability' grade to COH shares.
There were mulitple insider sells of COH around 6 - 8 months ago but all those occurred between $45 - $51 /share - well above today's price. Four of our site's Guru's hold these shares - Chris Davis, Ron Baron, Dodge & Cox and George Soros. Soros's current position is tiny but he may very well become more interested again at such cheap valuation parameters
Value Line assumes a return to a 25X mutiple over the next 3 - 5 years. Even assuming a much more conservative 18X multiple [to allow for skepticism on the near-term economic picture] a goal price of $44.10 seems very reasonable for 15 - 18 months out.
Great companies that typically command 'best of breed' premiums rarely stay depressed for long. As decent earnings are reported in future quarters renewed investor interest should be 'in the bag'.
Thus a 44% or better total return looks achievable on this high quality issue with bigger upside if a significant recession fails to materialize. COH shares actually traded as high as $45 and $54 in 2006 and 2007 when sales, cash flow and earnings were less than expected for the future.
Risk? With today's valuation so constrained [by historical measures] I see very small downside other than the dreaded 'dead money' scenario if investors continue to shun upscale retailers.
