Sell-Side Sees Opportunity To Bag Shares Of Coach On Post-Earnings Pullback

Investors turned their backs on Coach Inc COH after Tuesday’s mixed earnings report, but Wall Street stood loyally by.

The Buckingham Research Group called the 15-percent, $7.50 sell-off “overdone,” while UBS and Baird Equity Research tagged the pullback a buying opportunity. Each maintains Buy ratings on the stock Wednesday.

Time To Calibrate

Considering Coach’s sales miss, low guidance and strong run into earnings, analysts had expected a sell-off. But not necessarily to the extent seen.

“While we anticipated that a potentially noisy FQ4 report could drive a near-term pullback in shares, we’re somewhat surprised by the magnitude of the selloff,” Baird analysts Mark Altschwager and Drew North wrote in a Wednesday note.

Buckingham’s Scott Krasik called criticisms “short-sighted” and failing to account for impending catalysts.

“COH is one of the few ‘investable’ stocks in retail today,” Altschwager and North affirmed, calling Street expectations “lofty.”

And Buy In

Baird acknowledged a path to sustainable, double-digit growth in earnings per share driven by Kate Spade integration and maturation as a multi-brand company.

“Following impressive, largely on-plan execution of the Coach-brand turnaround amid a deteriorating category/retail environment, we’re confident betting this team can execute well on the Kate Spade integration, especially with benefit of Coach-brand earnings, S.W. integration experience and a now-stabilizing handbag category backdrop,” Altschwager and North wrote.

Krasik was similarly encouraged by underestimated three-year synergies from Kate Spade, potential for additional merger activity and Coach’s status as the only U.S.-based multi-brand luxury holding firm.

At the same time, he and UBS analysts Michael Binetti and Carlos Castellanos expect Kate synergies to well exceed two-year guidance of $50 million.

“At current levels, we do not believe the stock is accounting for positive sales trends and margin expansion beyond FY18, nor the potential accretion from future M&A and/ or the potential that growth in the North American handbag category ever reaccelerates,” Krasik wrote.

The closure of more than 100 Michael Kors Holdings Ltd KORS sites could further compound aforementioned effects, UBS noted.

Baird lowered its price target from $54 to $52, while Buckingham lowered from $58 to $56 and UBS from $55 to $50. At the time of publication, Coach was trading down on the day at $40.46.

Related Links:

Retail To Finish Q2 Earnings Season As Challenges Continue Cramer: Coach Is Now Out Of The 'Doghouse'