Coach Toting More Market Share In North America; Goldman Upgrades

Following Coach Inc COH's buyout of Kate Spade & Co KATE, the company is getting a positive feedback from the sell-side regarding its prospects in the $12 billion North American handbag market moving forward.

Goldman Sachs upgraded Coach from Neutral to Buy and raised its price target from $40 to $55. Analysts led by Lindsay Drucker Mann noted the move gives Coach an improving position in handbags and also has increased confidence in Coach’s management, and its “willingness to deploy capital in accretive ways."

Goldman Sachs believes the merger could unlock significant value through synergies, and sees an upside of $50 million in synergy guidance through and 14-30 percent EPS accretion by FY19.

“Though international growth has slowed, COH is benefitting from resumed market share gains in N.America, and is well positioned in the event a resurgent handbag cycle catalyzed by renewed luxury strength materializes,” Goldman Sachs said.

The deal also gives Kate Spade an opportunity to get a fresh start and reduce its exposure to flash sales and wholesale, issues that have plagued the company in the past.

“These actions would create a cleaner business for KATE from which to grow thereafter. Synergies help fund operational reset,” Goldman Sachs said.

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