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Coach Needs Time To 'Digest' Kate Spade, Stock Could Take Time To Adjust

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Coach Needs Time To 'Digest' Kate Spade, Stock Could Take Time To Adjust

Analysts at Piper Jaffray feel now is the time for Coach Inc (NYSE: COH)'s investors to move to the sidelines as the stock needs a "period of digestion."

The firm's Erinn Murphy downgraded Coach's stock from Overweight to Neutral with a price target lowered from $48 to $43.

Investors need to give Coach time for it to integrate the Kate Spade brand, which it acquired earlier this year, Murphy commented in a note. In fact, the company said it will be changing its comp reporting structure as part of being a "house of brands" company. Accordingly, it will likely take some time for the stock to see it's "drivers re-calibrate."

Investors and the Street have gotten used to Coach's reporting structure in which it would report NA global comp (including full price and outlet sales combined), the analyst said. The stock's success as of late has been trading positively on these comp-store numbers as it served as the best proxy to gauge the health of the Coach brand.

In other words, the fashion icon and retailer's results are likely to show a lower chance of comp and sales out performance moving forward as the P&L line will be more reliant on the Kate Spade EBIT synergies. Over the longer-term, the Kate Spade acquisition will likely generate synergies that will exceed management's $50 million target.

Related Links:

Your Roadmap To Navigating The Coach-Kate Spade Acquisition

The Handbag Pair Trade Revisited: Jefferies Picks Kors Over Coach

Image Credit: By Leitonmahillo (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Latest Ratings for COH

DateFirmActionFromTo
Nov 2017SusquehannaInitiates Coverage OnPositive
Oct 2017BairdMaintainsOutperform
Oct 2017BuckinghamMaintainsBuy

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