Coach Inc (COH) Is Beginning To Look Interesting

Coach (ticker: COH) has had several rough years in a row. In fact, would it surprise you to find out that Coach has been THE worst performing US consumer discretionary stock over the past four years? As of yesterday’s close, it is down 49.8% over the past four years beating out the likes of Wynn Resorts, Staples, and Bed Bath & Beyond for the the title of the worst performer. Coach’s poor performance is even more remarkable considering that only 12 out of 104 consumer discretionary stocks have had negative performance over the past four years. However, it seems that the fortunes for Coach may have finally turned the corner. Coach is up over 11% YTD and is the fifth best performing US consumer discretionary stocks this year.

GKCI United States Consumer Discretionary Worst Performing Stocks Over The Past Four Years

Coach Inc (COH)

GKCI United States Consumer Discretionary Best Performing Stocks Year-To-Date

Coach Inc (COH)

Importantly, a compelling valuation argument for Coach can start to be made. Coach is trading at just 6.5x intangible-adjusted cash flow. This is a 40% discount to the MSCI World and a 30% discount to Coach’s 10-year average P/CF ratio. It’s also trading at 2.4x sales, which is a 40% discount to Coach’s 10-year average P/S ratio and it’s also trading at 2.7x book value which is a 70% to Coach’s 10-year average P/BV ratio. Lastly, it’s paying out a very nice dividend yield of 3.7% or more than 50% the yield investors get from a 30-year treasury bond.

Sales and earnings expectations seems to have turned the corner as well. Analyst are predicting that sales will grow by just 2.3% per year on average for the next four years and earnings will grow by just 2.9% per year on average for the next four years as well. These are very low hurdle rates, even for Coach, and more importantly sales estimates have actually been increasing over the past six months. Earnings estimates are down slightly over the past six months but they are up a bit over the past one and three months.

Sales And EPS Growth Estimates

Coach Inc (COH)

Change In Sales And EPS Growth EstimatesCoach Inc (COH)

Finally, from a technical perspective the persistent bearish relative performance downtrend that Coach has been for several year has at least moderated to a neutral position. Coach has been putting in a base for two years and just broke through the bearish resistance line for the first time in over four years. Whether this is the start of a new uptrend it is still a bit too early to tell. However, the worst seems to behind coach for now and if this is a start to a new uptrend then there is tremendous upside for Coach’s stock.

Coach Inc (COH)

Coach Inc (COH) Is Beginning To Look Interesting by Eric Bush, CFA – Gavekal Capital Blog

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