Tiffany (NYSE:TIF), Coach (NYSE:COH) and Michael Kors (NYSE:KORS) are major players in the luxury segment of retailing. KORS has only been publicly traded since December 2011. TIF and COH have long, very successful track records.
You might expect that the performance of these three stocks would parallel each other. In fact, the present valuations are widely disparate. For smart shoppers this may spell opportunity.
Comparing these companies is complicated because they each use different fiscal years. Tiffany’s FY ends around Jan. 31 of the following year. Coach closes its books on the Saturday nearest June 30. Kors totals up near March 31 of the next calendar year. For clarity in this discussion I’m going to use my best guess as to apples-to-apples comparisons for the 12-month period ended around Jan. 31, 2013.
As of Jan. 31, 2013 Tiffany had earned about $3.25 per share, Coach’s EPS were about $3.62 and KORS came in at around $1.83 per share. Market pricing placed their current valuations as follows:
Traders are paying up for KORS while getting no dividends. Investors are shunning Coach even with a modest multiple and a decent yield. TIF falls right between those two extremes. Surprisingly, the two companies with publicly available, long-term results would suggest investors have gotten things mixed up.
Coach shareholders benefited from the huge profit surge.
It seems inexplicable that today’s investors prefer TIF to COH and award it a 54% higher P/E. Michael Kors premium valuation is easier to understand. KORS’ pro forma EPS were $0.40 in fiscal 2010. Profits almost doubled to $0.78 in 2011. Earnings are expected to be $1.86 when fiscal year 2012 is reported for the period ending March 30, 2013. A further 59% increase is now forecast for fiscal year 2013.
True believers in KORS feel the shares are not overpriced at 23.1x next year’s projection of $2.45 per share. Bargain seekers should be more attracted to Coach than Tiffany & Co.
The only time Coach traded cheaper, according to its valuation, than today was near the exact nadir in 2009. It paid no dividend back then. Shareholders were about to embark on an almost 600%, three-year move up. Today’s 2.4% yield is unprecedented. The trailing P/E of 13.8x is a lower starting point than those that launched huge rallies in 2003, 2006, 2010 and 2011.
All three of these companies are financially sound and highly profitable. Michael Kors is the fastest grower of the trio but its shares already reflect nothing but good news. Tiffany had a down 2012 yet is priced for growth. Coach had an all-time record fiscal year but is currently out of favor.
I bought both TIF and COH last summer when they sold off. I’m satisfied with my Tiffany gain and am planning to let TIF go via covered calls that expire on April 19. If Coach remains around $49 to $50 I’ll be using those proceeds from my TIF gains to increase my COH position.
Even a lower than historically typical P/E (for Coach) on the fiscal year 2014 consensus projection of $4.14 could support a 12-month target price of $65 to $75. That’s 30% to 50% above the current quote yet lower than was actually achieved early in 2012.
Disclosure: Long COH, Long TIF, short TIF covered calls.
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