Is Coach Still A Buy? (COH)

Coach, Inc.

reported earnings this morning that beat Wall Street estimates, and shares are up sharply over the year, gaining over 30% this year. This begs the question, are shares still a buy at this level? Brian Sozzi of Wall Street Strategies does have some concerns about the company, as evidenced in his analyst note. "At first blush, the report may have a few wondering if this type of comp and earnings growth is a peak in Coach's clawback from the depths of the U.S. recession or a sign of what is to come as international sales begin to dominate a slower growth U.S. story." He goes on to give a list of negatives, including: -No FY11 guidance raise pre earnings call. -Operating margin sustainability as gross margin sourcing tailwinds subside and investment spending on new international stores picks up. -Is inventory re-stocking by department stores globally now a done deal? Sozzi did note that there are positives to the quarter, as well. He was impressed that revenues and EPS beat by a handy margin, and that the company reported its best operating margin since Q1 2007. He also suggest that the holiday season may be better than anticipated, as inventory restocking is up 35% year over year. Shares are not cheap, as they are trading around 16 times forward earnings, but Coach does have some of the best management in the business. Lew Frankfort has done a wonderful job with turning the company into an Asian growth story, with tremendous opportunities in China. Disclosure: no position in COH