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In a report published Wednesday, Cantor Fitzgerald analyst Laura Champine upgraded her rating on Coach, Inc. (NYSE: COH) from Sell to Hold, while raising her price target from $31 to $33. The stock's valuation fully reflects the headwinds facing the company as market share declines, following the 13 percent year to date decline in the share price.

“We believe Coach still faces significant challenges in 2016 as it continues its attempts to revitalize its brand while fending off aggressive competition,” she stated.

The company reported its 4Q15 EPS ahead of the estimates, driven by lower interest expense as well as a $43 million top-line contribution from the recently acquired Stuart Weitzman. Same store sales declined 19 percent, after having fallen 17 percent in the previous year, although the overall handbag market grew in the low-to-mid single digit range during 4Q.

According to the Cantor Fitzgerald report, “SSS declined for the first time since the company began reporting the quarterly trend in FY:10.”

The company’s market share in FY15 also declined 23 percent from last year’s levels and the analyst expects further declines in 2016. In addition, the analyst believes that China is unlikely to continue to be a growth engine for Coach.

“We are raising our FY:16 EPS estimate to $2.02 from $1.77, largely to reflect an extra week of sales and the accretion generated from the Stuart Weitzman acquisition,” analyst Champine added.

Barclays Agrees

In a report published Wednesday, Barclays analyst Joan Payson maintained an Overweight rating on Coach, while lowering the price target from $50 to $46. The company closed FY15 with its domestic business in-line with the targets, along with “incremental signs of improvement.”

The company is expected to see sequential acceleration in its brick & mortar business on a one to two year basis, while renovated stores are already witnessing positive comps due to higher traffic.

The analyst believes that there is potential for the North American comp to turn positive in FY16, driven by reduced promotional activities.

“Outlets have been experiencing increases in ticket, reflecting positive response to new designs, now half of product,” the Barclays report said, while adding that handbag sales accelerated during 4Q15.

Piper Jaffray Said Much Of The Same

In a report published Wednesday, Piper Jaffray analyst Erinn E. Murphy maintained a Neutral rating and price target of $33 on Coach, following the announcement of the company’s 4Q15 results.

The analyst believes that the weakening of numbers during 4Q for the core Coach brand is largely reflected in the stock valuation.

“COH noted they saw a slowdown in the overall handbag category in the month of June in particular. We believe category trends could still slow which makes the space more broadly challenging to invest behind,” she added.

The management expects to witness category growth of 5-6 percent in FY16, driven by a rebound in the European luxury segment, along with growth in smaller brands and distribution growth from the more established North American brands.

“China overall saw negative comps, with strength in mainland China was offset by weakness in HK and Macau. Mgmt anticipates overall comps in China to be similar during FY16 to the trend in Q4,” the Piper Jaffray report added.

The company has lowered its FY16 guidance. The FY16 estimates have accordingly been reduced.

Wedbush Remained Neutral

In a report published Wednesday, Wedbush analyst Morry Brown maintained a Neutral rating on Coach, while lowering the price target from $37 to $32. Although the company reported a sequential improvement in comps, its FY16 guidance fell short of the expectations.

“Several positive signs stood out, particularly the sequential improvement in the two-year comp trend and positive SSS at the 45 Modern Luxury remodels in North America,” Brown said, adding that the “2016 guidance skewed negative versus consensus across all key metrics.”

However, the guidance also reflected sequential improvement expected in 2016. On the other hand, the analyst expects limited upside to the current forecasts, given that the brand’s turnaround is expected to be “somewhat choppy,” while weaker category trends could pressure sales and margins.

Following the Modern Luxury renovation in 45 North American stores, the analyst believes that these stores are showing some evidence that Coach’s transformational strategy could be gaining traction with customers.

Although Coach’s 2016 guidance includes a positive comp goal, the 2016 and 2017 estimates have been lowered.

Latest Ratings for COH

Nov 2017SusquehannaInitiates Coverage OnPositive
Oct 2017BairdMaintainsOutperform
Oct 2017BuckinghamMaintainsBuy

View More Analyst Ratings for COH
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Posted-In: Barclays Cantor Fitzgerald Piper Jaffray WedbushAnalyst Color Upgrades Price Target Analyst Ratings


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