Buckingham's Trade Pair? Coach Upgraded To Neutral, Kors Downgraded To Neutral

In two separate reports published Thursday, The Buckingham Research Group analyst David Glick upgraded shares of Coach Inc COH to Neutral from Underperform with a price target lowered to $30 from a previous $32. The analyst also downgraded shares of Michael Kors Holdings Ltd KORS to Neutral from Buy with a price target slashed to $42 from a previous $60.

Coach Upgraded With A Lower Price Target

Glick upgraded Coach given a view that "significant" downside beyond its current levels should be "limited" due to a 4 percent dividend yield ($1.35 annually) that acts as support. However, the analyst did acknowledge that Coach continues to operate in the "slowing" handbag market as indicated by industry data and store checks.

Glick said a price target reduction is justified as the company's fiscal 2016 guidance could be "materially below expectations." The analyst is expecting the company to earn $1.68 next year, while the consensus estimate is calling for a higher $1.95 per share.

Related Link: Michael Kors Vs. Coach Handbag Survey: Who Wins?

Bottom line, the risk to reward profile for the stock is now "more balanced" following a 21 percent decline since the company reported its third quarter results and supported by a dividend, which is expected to be maintained for the foreseeable future.

Michael Kors: ‘Meaningful' Downward Revision Expected

Glick began by noting his downgrade of Michael Kors is "clearly very late" as the company's fourth quarter negative U.S. retail comps and challenging outlook should have justified a downward revision at that time.

Glick added that he was "encouraged" by the "resilience" of the wholesale handbag trend. However, the analyst now believes there "significant reversals" in handbag trends at retail and department stores began in June and carried forward to July. This has resulted in concerns that the "very profitable" global wholesale segment and the "growing" North American wholesale segment could see a "material adverse impact" over the next several quarters.

As a result, Glick is expecting Michael Kors to issue a "meaningful downward revision" to its fiscal 2016 earnings guidance. As such, investors should move to the sidelines as the shares risk to reward profile is "balanced at best."

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