Coach's Turnaround Is In The Bag, CLSA Initiates At Buy

CLSA started coverage of Coach Inc COH with a Buy rating and $45 target price as it sees multiple drivers helping the company achieve its goal of double-digit EPS growth.

Analyst Rick Patel sees the positive comp momentum in North America to continue, driven by increases in average ticket with shift in sales mix towards pricier bags, e-commerce growth and the expansion of men's into all outlets.

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The analyst sees North American comps to grow 3 percent versus the Street's 2.5 percent.

"In non-core categories, we see plenty of growth opportunities across underpenetrated areas, including men's, Stuart Weitzman and footwear," Patel wrote in a note.

On the international front, Patel still sees a lot of whitespace to grow in Mainland China, while Europe is just getting started.

While expecting margin expansion from higher sales, the analyst believes the company could buyback shares or hike dividend given Coach's strong free cash flow, balance sheet and the recent cash infusion from sale of its two headquarters. However, the company may prolong capital decisions until a permanent CFO has been named.

At time of writing, shares of Coach rose 2.14 percent to $36.68. The $45 target implies a potential upside of 25 percent.