Coach's Turnaround: Is There Room In This Bag To Carry More Upside?

Analysts at Jefferies parted way with their bullish stance on Coach Inc (NYSE: COH) as there are few catalysts left to support the stock. The firm's Randal Konik downgraded Coach's stock rating from Buy to Hold with a price target lowered from $53 to $45, which implies downside to the stock from Monday's open of $48.14.

Coach's brand recovery will continue and the company's acquisition of Kate Spade will prove to be more positive than expected but this is something that "everyone knows," the analyst stated. Specifically, Coach's "self-help" story of generating positive comps and gross margin improvements have played out and reflected in the Street's sentiments.

Meanwhile, the handbag market is "good but not getting much better," which doesn't bode well for the market, the analyst continued. While Coach and its peers have done a good job in limiting promotional activity and selling more expensive handbags this trend is "getting long in the tooth."

Coach's stock multiple is also "significantly" above its rival Michael Kors Holdings Ltd (NYSE: KORS), and this "doesn't make sense." Michael Kors boasts a superior earnings per share and free cash flow profile, which means investors may be assigning the superior multiple to the wrong company.

Finally, the analyst acknowledged his outlook could be wrong if:

• 1. Coach's brand recovery in scale and duration prove to be even bigger than expected.
  2. The Kate Spade acquisition proves to be more accretive than thought.
  3. Coach delivers a superior margin profile than expected.

At time of publication, shares of Coach were down 3.53 percent at $46.97.

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