Coach

In: Business and Management

Submitted By viksterj
Words 5335
Pages 22
Coach Company Analysis

Recommendation: Sell Coach

The current recessionary environment has had a strong negative impact on individual income levels, consumer spending and consumer credit availability. As a producer of high priced luxury goods Coach stands to suffer from the state of the economy as conspicuous consumption is frowned upon and consumer frugality is in fashion. These are factors that significantly impact Coach’s financial outlook as the company has experienced declines in both same store sales as well as earnings from fiscal 2008 to fiscal 2009. Coach’s gross margins are also shrinking as the company has had to increasingly rely upon its factory outlet stores to sell its products[1]. This also presents the problem of brand dilution.

From a valuation perspective Coach’s P/E ratio, currently at 18.23, is well above the apparel industry average of 3.26, which suggests that from a relative valuation perspective the company may be overpriced[2]. Furthermore, the DCF analysis indicates an intrinsic value of approximately $35.00 while the current share price is $38.27 (3/11/10 close). Based on this quantitative data the stock is currently overpriced and has very little upward potential within our investment horizon. The stock’s price has increased over 200% in the past year and has been fluctuating between $34.00 and $37.00 since October (please see Appendix 1). The alpha from this stock was fully extracted in 2009 and the Coach holdings have run their course. The intent of this report is to illustrate that based on a combination of qualitative and quantitative factors this stock is currently overvalued and it is preferable to sell Coach and seek another stock to replace its value.

Company Overview

Coach Inc. specializes in the production of premium lifestyle accessories and is one of the most recognizable luxury brands in both the…...

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