Morgan Stanley Sees Bad News Priced Into Coach, Upgrades Stock

• Coach Inc COH shares have been declining steadily since April 20, and are down 29 percent in the last six months.
• Morgan Stanley’s Kimberly C Greenberger upgraded the rating on the company from Underweight to Equal-weight, while maintaining a price target of $27.
• Coach’s current stock valuation reflects concerns around the company’s business and earnings, Greenberger stated.

Coach’s market share in the US handbag segment has declined from 24 percent to 17 percent over the last two years. The company has, however, witnessed an improvement in the overall sales trends, analyst Kimberly Greenberger mentioned.

Coach’s Google search trends have also stabilized over the past two quarters, after a decline of 43 percent over a two-year period. Greenberger noted that the company’s expectations of positive comps in 4Q16 appear achievable, given easy comparisons and elimination of the EOS headwind by 2H16.

The analyst expects Coach’s business to stabilize over the next few quarters, with the next meaningful inflection likely in 2Q16. A rejuvenation of the company’s product offering, positive publicity for the brand and hiring of new staff for global PR and brand communications are expected to have a positive impact.

Coach’s remodeled stores are delivering positive comps and witnessing improved traffic and conversion. Greenberger commented that the biggest sales impact from these renovations will be visible in 2H16 and FY17.

In case Coach’s turnaround efforts fail to materialize or get delayed and cash concerns re-emerge, the company has the option to conduct a sale leaseback of its headquarters in Hudson Yards, the Morgan Stanley report stated.