This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Coach Crushes It

It has been a poor start to the third-quarter earnings seasons so far. Although the majority of firms have reported results that have beaten on the bottom line, just over 40% of S&P 500 companies are beating revenue estimates. In addition, forward guidance has been dismal. There are other concerns in the market -- the fiscal cliff, Europe and so on -- but Tuesday's rout in equities was primarily driven by earnings reports and guidance that have disappointed investors. I think this will continue throughout the quarter.

I used Tuesday's broad selloff to add to my position in Coach (COH - Get Report), which I have owned since earlier this year, when the stock plunged to around $50 on weakness in the retailer's metrics. My investment thesis is as follows. First, the company provided a lot of data points in its earnings report Tuesday that should make investors happy (see below). Second, the valuations are still reasonable. In addition, the company's growth in Asia is still in the early innings.

Finally, I have done well in picking up retailers that have had temporary selloffs, but for which I believe the company still has good growth prospects and commands a well-known brand. Vera Bradley (VRA), shares of which have gained just under 40% since I profiled it six weeks ago, is a good example of this strategy being successful.

Here are some key highlights from Coach's earning report and conference call.

  • The company reported earnings of $0.77 a share, beating estimates by a penny.
  • More important, the company stated sales in China grew at a 40% year-over-year clip.
  • Coach also showed solid domestic growth, with a reported 5.5% same-store sales uptick in North America.
  • Men's sales, while still a small part of total revenue, increased 50% from a year earlier, and the company believes this category can produce $650 million in sales this year.
  • Finally, just to put a cherry on top of a great quarter, Coach's board authorized a $1.5 billion stock-repurchase program.

Here are four additional reasons to own Coach at $58 a share:

  • The company has a solid balance sheet, with almost $900 million in net cash on its books, and it provides a 2.2% dividend yield.
  • Analysts expect revenue growth of more than 10% for both fiscal 2012 and 2013. Further, the five-year projected price-to-earnings relative to growth ratio (PEG) is just under 1 (0.99). Its retailing square footage should increase 10% to 15% in fiscal 2013.
  • Coach shares are selling at just 13x forward earnings, a discount to its five-year average of 15.4x. Further, look for those earnings estimates to move higher on Tuesday's strong earnings report and the significant announced buyback program.
  • Standard & Poor's has its highest Strong Buy rating on the shares, with a $70 price target on the stock. The stock is also an "outperform" rating at Credit Suisse.
At the time of publication, Jensen was long COH and VRA

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Real Money
Try it NOW

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums


Chart of I:DJI
DOW 16,790.19 +13.76 0.08%
S&P 500 1,979.92 -7.13 -0.36%
NASDAQ 4,748.3610 -32.9030 -0.69%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs